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California is one of only 15 states that allows for local jurisdictions to impose gasoline taxes and yet it has never been done in the state.
A new Democratic-controlled County Board of Supervisors and a supportive mayor in San Diego are promising signs for the political future of SANDAG’s ambitious transportation vision, known as the Five Big Moves. Boldness, however, will come at an estimated cost of $177 billion over 30 years that will require new sources of revenue. There are indications that SANDAG Executive Director Hasan Ikhrata would like to seek a sales tax increase on the 2022 ballot. Despite having political winds at its sails, it will be a difficult challenge for the agency, particularly with decreasing revenue from its existing half-cent TransNet sales tax due to COVID-19 shutdowns. At this moment between administrations, when new plans are being made, SANDAG should rethink its revenue generation strategy with a new tax that could raise the necessary funds while furthering its new vision through incentives.
Economists have long understood that taxation can have a distortionary effect on our economy, discouraging things we want more of, such as commerce. It is also well understood that society can be made better off by taxing things that cause damages. While an increase in sales tax for desperately needed improvements to infrastructure can be justified, there are activities that produce harm that we would be better off taxing. In the case of raising funds for a bold new transportation plan that decreases our region’s dependence on automobiles, the source of revenue seems almost obvious: gasoline. The tax itself can help accomplish SANDAG’s goal of encouraging San Diegans to choose alternative modes of transportation.
The trade-off between better transportation infrastructure and higher gas prices is one that most understand in California, where voters defeated an effort to kill a new statewide gas tax increase that pays for road repair and transit. While there are a range of estimates for how much a gas tax changes driving behavior, one study estimates that for every 10 cents of gasoline tax, you could expect to see a 1.5 percent decrease in vehicle carbon emissions. Research indicates that the socially optimal gasoline tax in California is $1.37 per gallon, giving SANDAG more than enough room on top of the new statewide increase to 62.47 cents per gallon.
California is one of only 15 states that allows for local jurisdictions to impose gasoline taxes and yet it has never been done in the state. While the county is able to impose a tax under current law, SANDAG would likely need the approval of the state Legislature to impose a fuel tax, as the Bay Area regional transportation authority did in 1998 (and never acted on). This would then have to be followed by a ballot measure that requires a two-thirds majority. With such a steep political hill to climb and the highest state-level gasoline taxes in the country, elected officials may be understandably concerned about feasibility. But the ambitious leadership at SANDAG would seem up to the task of breaking norms in the state. Further, a sales tax initiative, also subject to the two-thirds threshold, may be no less of a challenge in a time of severe economic hardship.
There are concerns about transportation revenues from gasoline in a future of electrified vehicles. But with only 35,000 electric vehicles in the region, that future is a long way off. Additionally, if the tax increase did lead to a significant increase in electric vehicle purchases, SANDAG would have done a great deal to reduce carbon emissions without spending a dime. One study found that fuel prices, not subsidies, have the biggest impact on electric vehicle sales. Other concerns center on fuel taxes being regressive – having higher impacts on low-income communities. Gas tax regressivity has been widely challenged, however, and pairing the tax with investments in transit and infrastructure in low-income communities could offset those concerns. At the very least, a gas tax would not be as regressive as a sales tax.
I grew up associating SANDAG with the signs on the side of the freeway. The vision of the Five Big Moves goes beyond freeways to reimagine how we move around the region and interact with one another based on goals of sustainability, health and equity. In seeking revenue for this vision, SANDAG has the opportunity to add another big move – a gasoline tax that can both provide the necessary resources to achieve its vision and an incentive to chip away at our dependence on automobiles.
Joe Bettles is a masters of public policy graduate student at the School of Global Policy and Strategy at UC San Diego.