Haslam has touted his proposal dubbed the Improve Act as including more tax cuts than Tennesseans would pay at the pump through raising the gas tax by 6 cents per gallon over the next three years, and diesel by 10 cents over the same period.
The measure is aimed at allowing the state to begin chipping away at a more than $10.5 billion backlog in transportation projects.
Wednesday’s House vote was seen as the biggest remaining hurdle for Haslam’s bill. In the Senate later in the day, Republican leadership drew a 25-6 vote to approve the bill.
The proposal heads back to the House to resolve a difference over property tax relief for veterans, which could push completion of the legislation until next week. The Senate wants property tax relief for disabled veterans to increase to up to $175,000 in property value.
Republican House Speaker Beth Harwell of Nashville ended up voting in favor of the bill after supporting the failed effort to remove the gas tax hike.
“While this was not the plan I preferred — I definitely preferred the other plan — at the end of the day infrastructure is a limited role of government and we need to perform it well,” Harwell told reporters after the vote.
The speaker said she doesn’t anticipate revived efforts to change the funding mechanism if the bill ends up in a conference committee to iron out differences.
“I think the vote was clear today,” she said.
Under the change proposed by Rep. David Hawk, R-Greeneville, the state would have instead paid for new transportation projects by dedicating tax revenue from the sale of new and used vehicles. Hawk’s alternative plan was defeated on a 58-38 vote.
Haslam has argued his approach was fairest because up to half of fuel taxes are paid for by trucking companies and out-of-state drivers. Sales taxes on vehicles are only paid on cars and trucks registered in Tennessee.
Following the vote, Haslam thanked lawmakers for passing a bill that “makes us more competitive as we’re recruiting manufacturing jobs and keeps our transportation network safe, reliable and debt-free for the next generation of Tennesseans.”
The House vote on the bill illustrated how closely divided the Republican supermajority is on the measure, with 37 members voting for and 35 voting against. Democrats voted 23-2 in favor of the amendment.
After the overwhelmingly Senate vote, Speaker Randy McNally, R-Oak Ridge, said the bill amounts to a “clear” and “undisputed” tax cut.
“It is a victory on all fronts -- for taxpayers, for economic development and for the continued mobility and safety of our citizens,” McNally said in a statement. “Good roads and solid infrastructure lead to economic expansion and job growth. Tax cuts result in more money in the pockets of our citizens and more entrepreneurism in our state.”
Tennessee’s gas tax is now 21.4 cents per gallon and its diesel tax is 18.4 cents per gallon.
The estimated $350 million the measure would add to road funding would be offset by a projected $400 million in cuts to other taxes. They include a 20 percent reduction in the sales tax on groceries, a $113 million cut in corporate taxes paid by manufacturers and a 1 percent reduction in the tax on earnings from stocks and bonds.
The bill lists nearly 1,000 projects that would be funded with the new revenue.