Asa result, inflation-adjusted revenues tend to erode over time unless the tax rate is increased periodically. The share of total state tax collections from excise taxes has declined inmost New England states over the last ten years. This shrinkage is attributable to excise taxes' lack of sensitivity to inflation, changes in patterns of consumption, and, in the case of the tax on motor fuels, sluggish economic growth. Gasoline Taxes Motor fuel taxes have generally been the most lucrative of the excises because motor fuel is a large tax base and tax rate increases have been frequent. However, motor fuel taxes are often negatively influenced by business cycles, seasonal demand, hikes in petroleum prices, and improvements in automobile fuel efficiency.
Several factors are responsible.
In 1989, the slowing economy and cyclically sensitive gas consumption caused real fuel revenues to fall. The surge in fuel revenues in 1990 and 1991 is attributable to significant rate increases in gasoline taxes in every New England state but Vermont. Massachusetts, for example, raised its tax on gasoline from 11 to 17 cents per gallon in August 1990, followed by another 4 cent increase in 1991. Since 1993, gas consumption has expanded modestly as the region's economy has recovered. Real revenues have also been boosted by lower rates of inflation and the phasing in of a 6 cent tax increase in Connecticut.