The state’s diesel fuel tax will rise July 1 to 49.2 cents per gallon, a nearly 23% increase from the current rate of 40.1 cents, the Department of Revenue Services announced Wednesday in a letter to state lawmakers.
The increase follows a year in which retail diesel prices have nearly doubled. It also comes six months before Connecticut is set to implement a new highway use tax on large commercial trucks.
Economists, some legislators and others argue the two moves will exacerbate inflation that has driven up the cost of goods and services considerably over the past 12 months.
Republican leaders in the state House and Senate have called for a special session to suspend the diesel tax entirely, including the increase. It was part of a larger $746 million plan to cut taxes.
“This is yet another blow to affordability in Connecticut that will further raise inflation on goods, groceries and services throughout our state,” the top Republicans in the state Senate and House, Kevin Kelly of Stratford and Vincent J. Candelora of North Branford, wrote in a joint statement. “What’s so infuriating is that this tax increase is something Connecticut Democrats and Governor Lamont knew was coming and could have stopped. … And thus far they have outright rejected our calls for a special session to suspend the diesel tax, repeal the truck tax and deliver far greater relief to Connecticut residents ranging from an income tax cut to energy assistance.”
Democratic legislative leaders counter that the $663 million in tax cuts approved this year already represents one of the larger tax reductions in state history and that the GOP is trying to rewrite history.
“They overwhelmingly voted ‘no’ on more than $600-million in tax cuts, and now they are facing voters who realize that Republicans voted against cutting the gas tax, against providing tax relief to families and against eliminating taxes on pensions,” Senate President Martin M. Looney of New Haven and House Speaker Matt Ritter of Hartford wrote in a joint statement. “After failing to propose a comprehensive budget in the 2021 or 2022 legislative sessions, the Republicans are back to trying to govern by political press release instead of doing the real work that’s put Connecticut in its best fiscal position in a generation.”
Republican legislators say they opposed the Democratic majority’s tax relief plan because it was too modest, given both the state’s huge fiscal reserves and the high inflation battering Connecticut households.
“Higher costs for goods means higher inflation and an even more expensive state,” said Republican gubernatorial candidate Bob Stefanowski of Madison. “I urge Governor Lamont to suspend all state taxes on gas and diesel to help residents get through the current crisis that he and President Biden have created.”
Lamont’s communications director, Max Reiss, could not immediately be reached for comment Wednesday.
“Governor Lamont passed the biggest tax cut in Connecticut history and got our state’s finances back on track,” said Lamont campaign spokesman Jake Lewis. “Governor Lamont’s budget created the child tax credit and expanded the earned income tax credit, while cutting the gas tax, car tax and property tax. All of which provides millions in relief and helps reduce costs for families across the state. Bob’s latest attempt to rewrite his record doesn’t change the fact that his plans would lead Connecticut to financial ruin.”
The diesel tax hike stems from an annual adjustment the legislature established in 2007. It follows a formula that includes a fixed base and an adjustment that considers average wholesale diesel prices over the prior year, as well as the tax rate applied to wholesale gasoline transactions.
Wholesale diesel prices at New Haven harbor hovered around $2.23 per gallon during the first week of July 2021, according to the Connecticut Energy Marketers Association. By mid-May 2022, the wholesale price of diesel was about $4.79 per gallon.
The AAA Northeast reported a sharp trend upward in retail diesel prices. The average per-gallon price at the pump Wednesday was $6.17, up from $3.26 one year ago.
University of Connecticut economist Fred Carstensen told the CT Mirror recently that the timing of the major bump in diesel taxes and the new highway use fee “is going to be brutal.”
When Lamont proposed the highway use tax in February 2021 to support the state’s transportation construction program, the Consumer Price Index showed low inflation of 1.4%.
The U.S. Bureau of Labor Statistics reported a CPI last week of 8.6%, a 40-year high. That means the average cost of goods nationally is 8.6% higher than it was 12 months ago.
The diesel tax has been as high over the past five years as 46.5 cents — where it stood in 2019.
Joe Sculley, president of the Motor Transport Association of Connecticut, has said the impact of the highway use fee will be more severe than that of the diesel tax hike. The association represents more than 500 trucking-related businesses.
The entire diesel tax — not just one rate increase — generated about $115 million in each of the previous two fiscal years, according to the revenue services department’s annual report.
The legislature’s nonpartisan Office of Fiscal Analysis estimates this new highway use will generate $90 million annually.
Lamont has said the highway use tax will ensure that trucks from other states help pay for the upkeep of Connecticut’s roads and bridges.