Arkansas Advocates: Pair gas tax hike with tax credit for low-income families

A proposal that would increase motor fuels taxes by 15 cents per gallon, paired with an earned income tax credit, is the best approach for funding highways without hurting lower-income workers, Arkansas Advocates for Children and Families says.

The group offered its thoughts in a new report, “Street Smarts: The Right Way to Fund Arkansas Highways,” by Eleanor Wheeler, senior policy analyst. Arkansas Advocates generally supports increased spending for state services and programs that benefit lower-income Arkansans.

The Governor’s Working Group on Highway Funding is finalizing four funding proposals for Gov. Asa Hutchinson (R) that would increase money for highways. Created by Hutchinson after this year’s legislative session, it will present a menu of options by Dec. 15.

The Arkansas Highway and Transportation Department has asked the group to find ways to increase funding by $400 million within a 10-year period. Highways face a funding shortfall because of increasing construction costs and declining revenues. The motor fuels tax, which traditionally has funded most highway maintenance and construction, has not been raised since 1993 at the federal level and since 2001 at the state level. Meanwhile, vehicles have become more fuel-efficient, reducing the amount of fuel taxes motorists pay into the system.

Of the Working Group’s four proposals, Arkansas Advocates supports one that would increase the motor fuels tax by 15 cents per gallon over three years, raising an additional $300 million for the state, cities and counties, while adjusting existing taxes to recoup the amount lost in recent years to inflation, raising about $160 million. The idea, pushed by Working Group member and Highway Commissioner Frank Scott, also would include considering a transition to a reportable miles traveled tax where drivers would pay taxes based not on fuel usage but on the amount of miles they drive.

Arkansas Advocates says a 15-cent gas tax increase would cost low-to-moderate income families about $80 per year. To offset that, it proposes an earned income tax credit for low-income families, which reduces the amount of taxes owed and can result in a family receiving a refund if the credit is larger than that amount.

Scott said Monday he supports adding an EITC to the proposal.

The report also supports an idea by Rep. Joe Jett, D-Success, chairman of the House Revenue and Tax Committee, to set aside 25% of state surplus money each year for highways. Such a set aside would have raised $478.4 million over the last decade. However, the report points out that the sizes of annual surpluses are unpredictable.

Arkansas Advocates specifically opposes one of the proposals by the Working Group that would transfer new and used car sales tax revenues from the general fund to highways. It says that proposal would reduce money for other state services. 

In a statement released by his office Thursday, Hutchinson said he would not support any plan that would add money to the overall tax burden faced by Arkansans.

“It is important to fund our highways but we want to keep the hardworking Arkansan in mind when they are at the gas pump filling up their truck as they commute to work,” Hutchinson said. “I will communicate my recommendations for highway funding in December or early January and also determine whether the committee needs to do additional work.”

Of the Working Group’s four proposals, only one might be considered “revenue neutral.” Its primary mechanism would increase highway user fees using an unspecified method, which would be offset by an already planned $60-$70 million sales tax reduction that was meant to coincide with the end of desegregation payments the state has been making to central Arkansas schools.