Fuel Tax Increase Could Be on the Horizon in Iowa

While some doubt it will muster enough support, a bipartisan group of legislators now predicts an increase in Iowa's fuel tax will pass.

The details of the proposal are still being worked out, but officials are exploring a plan in which they would find $50 million in savings in the Iowa Department of Transportation and then consecutive 4- or 5-cent per gallon fuel tax increases, in 2013 and 2014. Iowa’s fuel tax is 21 cents per gallon for gasoline and 19 cents for ethanol-blended fuel. The tax was last increased in 1989.

Each 1-cent per gallon increase is expected to generate $22 million a year, meaning the increase would generate between $176 million and $220 million a year in additional revenue when fully phased-in.

That's disconcerting when you run a small business, says Berneice Johnson, a floral designer at .

Johnson, who's worked at Classic Floral Design for 18 years, said even just a few cents increase in gas will have an effect on the business, both on the cost of delivery and the cost of its product.

"It will most definitely have an impact on our business," she said. "We haven't had to raise prices since (Hurricane) Katrina. If the fuel tax passes, we will have to reevaluate our delivery charge."

Johnson said the current delivery charge is $2-$10 depending on the distance of the delivery, and is a separate charge from the cost of their product.

She added that they may see more of an increase from their suppliers if the fuel tax increases.

Same goes for the . Assistant manager Tyler Caravan said that the cost of gas goes up all the time but rarely effects pizza deliveries. They will most likely see an increase in the cost of food from their suppliers.

"We don't do a ton of deliveries, it's mostly dine in and pick-up so we probably won’t see much there," he said. "Where we'll probably notice an increase is in food costs and there's nothing we can really do about that."

Economist Say It’s Worth It

During a taping of Iowa Press and reported by the Associated Press, Iowa State University economist David Swenson said a 10-cent per gallon increase in the tax would cost the average family about $32 a year. Swenson and Creighton University economist Ernie Goss said the tax is worth it because roads are vital to Iowa’s economy the tax would be hardly noticed.

Increasing vehicle registration fees has also been discussed, but some say targeting the fuel tax is favorable because out of state users of Iowa roads would share the cost, as opposed to registration fees, in which Iowans alone would shoulder it.

Iowa State University Mechanics and Economics Professor Ross Morrow said he doubts an 8-cent increase would significantly change driving habits across Iowa.

“People tend to be very unresponsive to gas price increases, especially small and steady ones,” Morrow said.

John Solow, an economics associate professor at the University of Iowa Tippie College of Business, said a gas tax increase would have a negative, although limited, impact on Iowans.

Solow said those with low incomes who have commutes would suffer, and it could hurt the production and employment in Iowa, particularly for industries that rely on fuel and can’t pass the hike along to their customer.

Still, the tax may be the most fair way to address road maintenance needs, he said.

“Using gas tax revenue to maintain roads fits with what is called the "benefits principle" of taxation,” Solow said. “(This) is the idea that those who benefit from the expenditure should bear its cost, but it does so only loosely, in that the correlation between gasoline purchases and benefits from road use is not perfect.”

Can It Pass In An Election Year?

As with most things in the Legislature, it will depend on politics.

An advocacy group from Muscatine called Iowans for Tax Relief has urged the Iowa Legislature not to raise the gas tax “at a time when gasoline prices are predicted to spike,” and asked Iowans to contact their legislators to encourage them to oppose a bill if it is introduced.

The Farm Bureau, along with some cities, counties and labor groups, support the increase. Citing a state survey, the Cedar Rapids Gazette reported the state needs about $215 million to address "critical" infrastructure needs.

Christopher Larimer, political science professor at the University of Northern Iowa, questioned how strong the support would be during an election year, but said with Branstad’s support and if the economy continues to recover it may slide through.

"(It's) tricky. On one hand, in an election year you never want to vote for a tax,” Larimer said. “On the other hand, if you ask Iowans all over the state they’ll tell you the infrastructure needs work. It seems like every week we’re hearing about old roads that are falling apart.”