On Raising the Gas Tax in Minnesota

The best solution is to tax gasoline, not ethanol

by Leigh Pomeroy

Saturday's vote in the Minnesota House to raise the gas tax from $.22 to $.32 a gallon has been viewed by supporters of the governor as a meaningless gesture. The reason is quite simple: He says he will veto it.

By all expectations the Senate will vote to go along with the increase as well, although its bill is somewhat different.

I do not understand the governor's reasoning behind his intention to veto the increase. He claims that Minnesota's transportation woes can be covered by bonding, but most economists and transportation experts, as well as legislators, find this fiscally troubling. The governor says he's given up on his "no new taxes" pledge, yet his intent to veto sounds very much like a vestigial appendage from that not-so-long ago era.

One could make an argument that a jump in Minnesota's gas taxes might put the state out of alignment with its neighbors. Yet the gas tax in Wisconsin, our economically most powerful neighbor, is $.329 per gallon. (Iowa's is $.22, North Dakota's is $.23 and South Dakota's is $.24.)

But let us make a distinction here. Technically we're not talking about gas taxes but nondiesel motor vehicle fuel taxes. At 85% ethanol, for example, E85 fuel is not technically gasoline but ... well ... 85% ethanol and 15% gasoline.

What if Minnesota, instead of raising the nondiesel motor vehicle fuel tax by $.10, instituted a true gasoline tax? That is, only the gasoline component in the fuel would be taxed. Thus, if the gasoline tax were $.32 per gallon, the actual tax on most fuel at the pump, which is 90% gasoline and 10% ethanol, would be $.288 per gallon. The tax on E85 would be only $.048 per gallon. And, as we move toward a 20% ethanol blend, that fuel tax would be $.256 per gallon.

This seems to be a solution that would satisfy both the governor and the legislature. First, it raises the fuel tax but places it somewhere between what the governor wants -- $.22 per gallon -- and what the legislature wants -- $.32 per gallon. Second, it encourages E85 use by actually lowering the tax on E85 by over $.17 a gallon. This would promote the sale of cars adapted to run on E85, and give further impetus to the owners of those cars to fill up with E85.

Suddenly, nearly every gas station in the state would install E85 pumps, and it all would be done without direct economic incentives.

Now isn't this what we want to accomplish in Minnesota? Support our homegrown, pollution minimizing energy resources and discourage the purchase of foreign oil? Talk about a way to keep Minnesota dollars within the Minnesota economy!

Admittedly, this solution may not raise the same amount of dollars to take care of our transportation needs than a straight $.10 per gallon fuel tax increase would. But then again, it's better than no increase at all, and much better for Minnesota's economy and environment than a straight $.05 per gallon increase.

For the legislature to buy into this solution should be a no-brainer. But the governor? I don't know his mind.

Yet for him this would be the perfect policy to advance: Promoting Minnesota-based energy production, a clean environment and a compromise solution that would be popular with the vast majority of his constituents. Embracing a gasoline-only tax would turn a negative position -- the threat to veto -- into a positive one.

Let's hope that both he and the legislature view this option as another way to enhance Minnesota's standing as a leader in energy, environment and economic policy innovations.