Balancing tax relief against tax revenue
As gasoline prices rise, a growing number of states are considering lowering their gas taxes to ease the strain on drivers’ wallets. However, the choice is between consumer tax relief and the loss of tax revenue used to fund transportation projects, says Bert Waisanen, a fiscal analyst with the Washington-based National Conference of State Legislatures (NCSL). “It’s always a delicate balance,” Waisanen says. At least nine states have considered bills to reduce state sales tax on gas, according to NCSL, and New York and Wisconsin already have taken action.
Wisconsin will freeze its gas tax index for 2007, meaning that the tax will not automatically increase to match inflation as usual, Waisanen says. Because the tax pays for state road projects, the loss of revenue may force the state to draw from the general fund for those projects, says George Twigg, spokesman for Madison, Wis., Mayor David Cieslewicz. That could reduce money the state sends to local governments through the Shared Revenue program, which provides general aid to municipalities and has been frozen for several years. “It just makes a very tight state budget even tighter,” Twigg says.
On June 1, New York capped its state sales tax at 8 cents per gallon — previously the state charged an average of 12 cents per gallon — and could drop more if the price of gas falls below $2 per gallon, according to state Sen. Dale Volker, R-Depew. The cap is expected to save motorists nearly $450 million, Volker said in a statement. But, the state may lose approximately $250 million a year, says Tom Bergin, director of public information for the New York Department of Revenue. The tax revenue goes into the state’s general fund, Bergin says, and is returned to local governments in many ways. Individual counties were given the option to cap their sales taxes as well, however, Bergin says several counties have opted not to do so for a variety of reasons, including reluctance to lose revenue.
Albany County, N.Y., decided to cap its 4-percent gas tax at $2 a gallon, says Kerri Battle, director of communication for County Executive Michael Breslin. “Anything above $2 we would not collect on,” Battle says. The cap may eliminate $4 million that the county planned to collect over the next four years, says Albany County Legislature spokeswoman Betsy Weiss, adding that the increase in revenue from higher gas prices was a windfall anyway. That was a factor in the county’s decision, according to county legislature Majority Leader Frank Commisso.
However, Robert Lipp, principal economist for the Suffolk County, N.Y., Budget Review Office, decries the windfall idea. The revenue from higher gas prices can be lost in other economic areas, Lipp says. By mid-June, Suffolk County still was considering a gas tax cap, but last year Lipp issued a memo arguing against lowering the state’s gas taxes to reduce gas prices. “Higher motor fuel prices not only reduce pressures on the demand for energy but also create incentives to innovate alternative fuel sources,” he says.
Last month, drivers in Florida enjoyed a one-month gas tax holiday. But Dave Hardison, an administrator for Orange County, Fla., says that lowering gas taxes does not necessarily save consumers money. “If there were only two companies in the country that sold steak, and each one only got 10 cows to sell each year, I guarantee that lowering the tax on steak wouldn’t lower the price. It would just force those two companies to charge more,” Hardison says. “If people are willing to buy all 10 cows for $45 per pound, only a very bad businessman would agree to sell it for less.”
Regular, supreme or tax free
Along with New York, which capped its sales tax on gas at 8 cents a gallon, and Wisconsin, which froze its gas tax index to keep it from automatically increasing in 2007, several other states have considered similar actions.
Idaho HB 487 would establish a temporary moratorium on certain fuel taxes and would transfer $49 million from the state’s general fund to the tax commission to compensate for the lost tax revenue.
Illinois HB 5785 would establish a three-month gas tax holiday from May 15 to Sept. 15 that is expected to save motorists 20 cents a gallon.
Missouri HB 2096 would authorize a gas tax holiday for four days on Memorial Day weekend and Labor Day weekend, reducing the state’s excise tax from 17 cents a gallon to 7 cents a gallon.
Texas HB 120 would authorize a 90-day moratorium on the state’s 20-cent a gallon gas tax.
SOURCE: National Conference of State Legislatures
