If You Think Gas Prices Are Bad…

by Tom Yamachika, President, Tax Foundation Hawaii

Many of us who drive cars now dread the day when we’ve got to go to the gas station. Between COVID-19, Russia vs. Ukraine, and other economic factors, gas prices have already passed the $5 per gallon mark and don’t appear to be falling anytime soon.

What we might not know, however, is that there are a lot of different taxes that go into the price at the pump.  Just looking at those imposed at the state and county levels , we start with the state fuel tax of 16 cents per gallon. Then there is a county fuel tax on top of it. The cheapest county fuel tax is here in Honolulu at 16.5 cents per gallon, and it goes up to 24 cents per gallon on Maui.

Then there is a component called the barrel tax, which is imposed on any imported fuels. Its official name is the environmental response, energy, and food security tax, and it is imposed at $1.05 per barrel. A barrel is 42 gallons so that works out to 2.5 cents per gallon.

And finally, of course, we can’t forget our state GET, the general excise tax, at 4% of the sales price, to which is added another 0.5% in all counties other than Maui. With a $5 per gallon sales price as an example, this adds another 22.5 cents per gallon.

That brings us to about 57.5 cents per gallon, just in state and county taxes, so far.

At our legislature, there is a fair number of people who think that gasoline taxes need to be raised, big time, to combat the environmental threat posed by fossil fuel burning. That’s why in the past few sessions they had proposed a “carbon tax” to pay for the societal costs of pollution, global warming, and so forth. In this past session, the bill was House Bill 2278.  That bill proposed to change the barrel tax for gasoline to $5.27 per barrel initially, increasing in phases to $33.16 when fully phased in. That translates to 12.5 cents a gallon initially and 79 cents a gallon when fully phased in. That would change the state and county tax on a gallon of gas from 57.5 cents to $1.34 a gallon, at least, if adopted and fully phased in.

And, of course, there are those who don’t think an increase of this magnitude is enough.  The carbon tax proposed by House Bill 2278 started off at about $14 per metric ton of CO₂ and increased to about $89 per metric ton, using the conversion factor (per the EPA website) of 0.00887 metric tons of CO₂ per gallon of gasoline.  Various groups have suggested that a higher tax would be needed to drive compliance with the state’s net zero emissions goal by 2045.

In the meantime, the Department of Transportation hasn’t given up on its proposed Road Usage Charge, a project to distribute the cost of road maintenance more equitably among the users of our state’s highways and byways.  The project has been proceeding under the assumption that the road usage charge would replace the fuel tax.  But a road usage charge bill introduced this session, Senate Bill 3313, proposed the road usage charge on top of the fuel tax for electric vehicles, instead replacing the special $50 motor vehicle registration fee for those vehicles.  That bill died this session, but it or something similar could always be introduced next year.  Road usage charges, unfortunately, represent another possible revenue enhancement (translation:  “higher tax”).

Hmm, that bicycle in the window is looking pretty good right now!