Transportation is a crucial ingredient to a successful economy and society in terms of moving people, goods, and services between areas with different comparative advantages. Land, water, and air are the most common mediums and travel over each has associated advantages and costs. For most of us, travel over land is the most common transportation mode and affects us directly. Over time, the human species has developed more efficient transportation alternatives, with fossil fueled trucks and cars being the primary carriers today. But as with most network situations, the individual car or truck has little value without the roads, bridges, and associated infrastructure that enables travel between places. In Mississippi in 2021, a dilemma confronts policymakers as they struggle to maintain (much less build) roads and bridges. The problem is two-fold. The first issue is the increasing costs of maintenance. But the larger issue is generating the revenue to cover these increasing costs.Currently, the bulk of these revenues come from gasoline taxes which are decreasing in real terms due to several factors.
Gasoline tax revenue is composed of two components - quantity and price, both of which are eroding in Mississippi. Decreased quantity is a result of the increased efficiency of motor vehicles across time (more miles per gallon). For example, when you trade in a car that gets 15 MPG for one that gets 25 MPG, you purchase less gasoline assuming you drive the same number of miles. In regard to price, Mississippi’s gasoline tax has not changed since 1987. The reality is a dollar that would buy a dollar of asphalt in 1987 only buys 42 cents of asphalt today. Another way to look at this is you need $2.36 today to buy what $1.00 would buy in 1987. The increased efficiency of modern vehicles combined with the decrease in real purchasing power produces today’s dilemma of decreased gasoline tax revenue since quantity and price are the two components of the revenue equation (Revenue = quantity X price).
The response of Mississippi policymakers has mostly been passive resistance to the economic reality discussed above. The major policy tool available to change tax revenue is price which is the actual tax of 18 cents per gallon, a tax which has remained unchanged since 1987 (34 years ago). Recently, the state legislature enacted a state lottery with the first $80 million of lottery revenue each year being directed to the state highway fund to support infrastructure needs. This is a rather odd approach since the lottery is often considered a regressive “tax” and has little relation to the actual riders and drivers who use roads and bridges.
It should be stated that much (currently about half) of transportation infrastructure needs in Mississippi are supported with federal funds. This includes an additional federal gas tax of 18.4 cents per gallon (last increased in 1993) and infusions such as the recently passed $1.2 trillion infrastructure bill.
While one-time federal assistance is welcomed, the current system ignores an impending future where gasoline powered vehicles are replaced by hybrid and electric vehicles and compounds the revenue decrease due to the decreased quantity of gasoline purchased. Mississippi legislators have partially addressed this issue through an additional annual car tag tax of $75 for hybrid vehicles and $150 for electric vehicles, a commendable attempt to even the current use tax difference between gasoline and non-gasoline road travelers. But to ignore the inaction as concerns a decreasing source of revenue from the gas tax is not sustainable and robbing Peter (lottery) to pay Paul (highways and bridges) is a continuation of misguided economic policies that put Mississippi at a disadvantage relative to our sister states.
Steve Turner is Director Emeritus of the Southern Rural Development Center at Mississippi State University.
