5 ways House transportation tax plan robs Peter to pay Paul

State House Speaker David Ralston introduced a complicated scheme Wednesday to increase transportation funding with a seemingly contradictory claim.

“This plan will provide more than $1 billion annually in new transportation dollars,” he said. “It does not result in an increase of state taxes on Georgians.”

House Speaker David Ralston, Georgia

House Speaker David Ralston

That’s only true if you allow for some pretty convoluted caveats. It’s true, for example, if you don’t consider $7.5 million in new fees to be a “tax” increase. And if you don’t acknowledge that a $175 million gap it creates for the rest of the state budget will have to be closed one way or another. And if you assume bond debt can be serviced without a future tax increase. And, most of all, if you decide that shifting what was local revenue into state coffers doesn’t amount to a “state” tax increase.

My purpose isn’t to put the ixnay on the House leadership’s plan to fund transportation improvements. At least it’s a plan, which amounts to progress in Georgia’s state-of-denial political culture. And it would for the first time provide state bonds for transit (though it may, at the same time, also cut off a revenue source for transit).

The heart of the proposal involves rolling up all current taxes at the pump — the 7.5 cent per gallon excise (or motor fuel) tax, the 4 percent state sales tax, and the 3 percent local sales tax — into one 29.2 cent excise tax, which at current gasoline prices is equivalent to those three existing taxes.

But the proposal also is precisely what Georgia Tea Party activists are calling it: a “shell game” — being played by politicians who want to pretend that they’re not raising taxes when really they are. It would be nice if we could all just admit that the House leadership scheme is a tax increase. Then, we could move on to discussing whether it shifts in the tax burden in a fair, efficient way. Not to mention, whether it makes the money available to solve Georgia’s transportation mess.

Meanwhile, here’s a reality check on five ways that the scheme really doesn’t rise above the hard laws of mathematics:

1. It exempts gasoline from the state sales tax.

For months, transportation funding advocates have complained that a penny from the state’s 4 percent sales tax on gasoline is “diverted” to state spending other than transportation. The real question is why the other three pennies of state sales tax revenue collected the pump should be reserved just for transportation.

When I pay sales tax on a Big Mac, for example, the entire state portion of that tax is thrown into a big budget pool known as the “General Fund.” In other words, the money goes to all manner of state programs. It isn’t restricted, say, to giving all Georgians a coupon to go buy a hamburger or some other subsidy that might help McDonald’s. Same thing if I buy a pair of jeans: The money’s not treated as “user fee” designed to help those who sell clothing.

But that’s the way three-fourths of the current sales tax on gasoline is treated. It amounts to a subsidy for transportation-related industries. Based on current prices at the pump, state sales taxes from gasoline bring in about $700 million — with a quarter of that money (the 1 percent) going toward the General Fund.

The plan unveiled yesterday doesn’t just redirect that 1 percent (about $175 million) from the General Fund to road-and-bridge projects. It actually eliminates the entire state sales tax on gasoline. So $700 million that would be going into General Fund, if the gasoline sales tax was treated the same way as the sales taxes on other types of spending, simply won’t go into the General Fund.

2. It restricts the ability of local governments to raise money

Local governments already are going bonkers over this part of the package. By exempting gasoline from even local sales taxes, the plan removes a huge revenue source for cities, counties and school systems — more than half a billion dollars, according to the Georgia Municipal Association. Almost every county and school system in the state already depends “local-option sales taxes” and “special local option sales taxes.” Current LOSTS and SPLOSTS will be grandfathered in, so in classic politicians’ style, House leaders have devised a plan where the local pain won’t be felt until well after the deed is done.

To top it all off, the price at the pump will reflect an immediate tax increase, because the state will raise the overall rate at the pump while local governments will leave their sales taxes in place! Bizarrely, some conservative apologists for House leaders claim this doesn’t amount to a state tax increase.

As those local sales taxes expire, however, local governments and school systems will have to either cut spending or find new sources of revenue. In effect, cuts to school construction (along with parks, public buildings and even transit) are being recommended a week after Gov. Nathan Deal proposed increasing education spending. With a big, new hole in their budgets, don’t be surprised a couple of years from now when local governments and school systems figure out ways to hike your property taxes.

3. It encourages virtually forces local governments to raise the gas tax.

Remember from my description above: That 29.2 cent per gallon state “excise tax” would be set to approximate current revenues from the existing gas tax (which is measured per gallon), and from both state and local sales taxes on gasoline (which are computed as a percentage of the price). But once the local option sales taxes expire, local governments will be allowed tor replace some of their lost sales tax revenue by imposing an additional local excise tax of 3 cents per gallon — so long as that money goes only toward transportation. (By the way: Because “motor fuel taxes” may only be spent on roads and bridges, it’s unclear whether gas taxes levied by local governments but collected by the state also would be barred from funding transit. If so, the state actually could be cutting off a potential source of transit funding by moving that revenue source from a sales tax to a gas tax. So much for helping transit. UPDATE: While the draft bill would allow the local portion of the excise tax to be spent on transit, the state Constitution — which takes precedence — appears to bar that, limiting “grants to counties” from gas tax revenue to “road construction and maintenance.”)

From the perspective of the anti-tax wing of the Republican Party, there are several problems with this part of the plan: For one thing, a three-cent-per-gallon local tax — unlike the local sales taxes — wouldn’t require a referendum. It’s a lot easier for a local government to impose a new tax without having to ask people for a vote on it.

Another problem is that it’s the ultimate shell game: Legislators can’t credibly claim that they’re not raising state taxes when they’re shifting half a billion dollars from local governments into their own state kitty. And they can’t rightly argue that local governments are raising taxes when the local governments would be replacing the money the state simply grabbed for itself.

4. It imposes a new fee on less-polluting vehicles.

Georgians currently are given an incentive to buy less-polluting vehicles: they don’t have to pay a “user fee” for the state’s roadways because their money can’t be captured at the pump. That benefit is icing on top of a generous, unrelated tax credit electric vehicle buyers currently receive in Georgia.

It’s worth noting, however, that the owners of alternative fuel vehicles — whether they use electricity, propane or natural gas — already do pay state and local sales taxes to the tune of 7 or 8 percent in addition to various environmental fees. The House plan calls for private owners of clean-fuel vehicles (other than electric hybrids) to pay a $200 annual fee because they don’t pay gas taxes. Businesses would pay $300 per vehicle. That’s the equivalent what a conventional vehicle owner would pay at the pump (if the House leaders’ proposal was passed) assuming 17,000 miles a year at 25 miles per gallon or, in case of business-owned vehicle, 25,500 miles of fill-ups. When you add that fee to the sales taxes, it seems a bit steep.

The fee from alternative-fuel vehicles would be directed toward funding for transit. Perhaps, that’s because the state Constitution bars gas tax money from being spent on. But it also smacks of an sort of arbitrary fee for being green. If you’re going to go out and not buy a gas guzzler, House leaders seem to be saying, well then we’ll make you pay for transit also, because hippies like you seem to like that stuff. GeorgiaPundit.com dubs that the “hipster fee”: “It’s hard to imagine a fee more narrowly tailored to primarily hit liberals.”

Metro Atlanta currently is the nation’s number two market for electric vehicles — mainly because of the generous tax credit I mentioned avove. But lawmakers seem set to eliminate or severely restrict that credit this session. At least in this particular culture war, the “hipsters” have an odd bedfellow: You can bet that Georgia Power’s army of lobbyists down at the Capitol will work hard to keep as many incentives in the law as possible to encourage people to buy electric vehicles.

5. It pretends bond spending is free money.

In putting together the claim that they’ve found $1 billion in new (tax-free) transportation money, House leaders are counting $100 million in bonds they say they’ll issue for transit spending. Some transit advocates and many in the media are lauding that commitment as the state’s first, long-overdue foray into supporting 21st century transportation. Time for a reality check.

First of all, bonds aren’t free money. One way of looking at it: That $7.5 million a year from the clean-vehicle fees won’t be in addition to the bond spending. It will have to be used to pay off the bonds, or else lawmakers will have to find another kitty from which to pay off the bond debt, which in turn means either cutting somewhere else or … raising taxes.

Whether intentional or not, there’s a little sick irony here. Because the plan shifts all taxes at the pump into one motor fuel excise tax, it actually would eliminate a much larger potential revenue source for transit. That’s because the sales tax on gasoline could have always been used on transit, but the state Constitution allows the excise tax to only be spent on roads and bridges.

Second, $100 million in one year is a pittance when it comes to transit funding. What happens next year, and the year after that? Is the intention to issue $100 million in bonds for transit every year, without identifying a way to pay off those bonds? Eventually, you may be talking about real money — and then you may be talking about another tax increase.

By | 2016-10-21T14:20:40+00:00 29 January 2015|Bus & Rail, Roads, TRANSPORT|0 Comments

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