Gas Taxes and Gas Prices

When one person says something it is can often be dismissed as a simple statement of their opinion. When two people make the exact same statement and they happen to both be state legislators who are intimately involved in setting transportation policies in New Mexico, it becomes a talking point.
This became apparent recently as I have listened to both Rep. Patricia Lundstrom, Vice Chair of the House Transportation Committee, and Sen. Diane Snyder of the Senate’s Transportation Committee, argue that on a national basis, gas taxes and gas prices are not correlated. The argument would then presumably follow that if raising the gas tax doesn’t increase prices at the pump, then New Mexico should increase its gas tax to resolve the its Railrunner-induced transportation crisis.
Of course, as anyone who understands basic economics would know, the legislators’ argument does not hold water. First and foremost, with 20 different gasoline formulations imposed by the federal government, clearly we are not dealing with one national market, but many separate markets for gasoline. Also, geography is important.
Not surprisingly, relatively isolated states like Hawaii and Alaska (despite low tax rates and the presence of oil), increase the price of gas. In fact, Hawaii is the most expensive and Alaska is second-highest right now.
In reality, despite the formulary issue, once you factor in geography, gas taxes do indeed seem to correlate with higher prices at the pump. An updated list of gas prices is maintained by AAA and a list of states and their gas taxes can be found here.
Not surprisingly, gas in Washington, with its 34 cent gas tax is about a dime more costly than gas in Oregon with its 24 cent per gallon tax. While prices at the pump in New Mexico trend somewhat higher than nearby states with the same tax rate, this is more likely a factor of having a relatively sparse population (see Montana as an example) than other factors.
Undoubtedly, pricing gas across state lines is not a perfect science, but I can assure you that if New Mexico increases its gas tax, prices at the pump will increase by a corresponding amount.