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Marc! 22, 2011
\o. 264
Rising Gasoline Prices Benefit a Few
States
By
Alex Wood-Doughty, Sarah Hyon, and Kal Padgitt
Introduction
Every day, news headlines highlight the rising price of crude oil. An article on the determinants of oil prices,
ominously tided The Price of Fear, was the top story in a recent edition of The Economist.' Federal Reserve
Chairman Ben Bernanke testified before both houses of Congress that concerns about unrest in the Middle
East and North Africa and the possible effects on global oil supplies have led oil and gasoline prices to rise
further.2 And a paper coauthored by Berkeley economist Severin Borenstein found that rising oil prices
translate into a real financial burden at the pump, estimating that for every $1.00 increase in a barrel of oil
there is a 1.31 cent increase in a gallon of gasoline.3
Over the past year, the average price of gasoline in the United States has increased by almost 75 cents per
gallon.4 Every state and the federal government impose an excise tax on the sale of gasoline as a fixed number
of cents per gallon. Therefore, as gas prices rise, states will see no increase in gas excise tax revenue since the
tax rate is fixed regardless of price. In fact, states may even see a drop in revenue if demand decreases due to
the higher prices.
Some states, however, apply a sales tax (or a similar tax) to gasoline, in addition to their excise tax. When gas
prices go up, these states will receive additional tax revenue; For example, Indiana levies a 7 percent sales tax
on gasoline in addition to its gasoline excise tax. Due to higher gas prices relative to a year ago, Indiana is
currently collecting an additional 5 cents for every gallon of gasoline purchased. This amounts to over $202
million in tax revenue for Indiana in just the past year, purely because of the increased price of gasoline.
The following table shows the states that charge a percentage-based tax on gasoline:
I The Price of Fear. The Economist 3 Mar. 2011: 29-32. ntp.!wwwweconomit.com/node/I828 768.
2 Ben S. Bernanke, Semiannual Monetary Policy Report to the Congress. 1 Mar. 2011.
tl . I w.erAre e.g . inews extrlmon,, /bevnanke20110301 a.htm.
3 Severin Borenstein, et al. Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?
Quarterly Journal of Economics, February 1997.
4 Weekly U.S. Retail Gasoline Prices, Regular Grade. U.S. Energy Information Administration,
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