Monday, October 13, 2014

A "gas sales tax"? Does it change anything?

Just saw this flash by, and at first glance, it's quite the change-up from Gov Walker.
Gov. Scott Walker said Monday he is considering replacing the state's gasoline tax with a sales tax on gas and alternative vehicle fuel sources to stabilize long-term transportation funding in the state.

Walker offered few specifics, and the impact on consumers of charging a sales tax at the pump -- rather than the existing tax on gasoline suppliers that gets built into the pump price -- was unclear.

In an interview with the State Journal editorial board, Walker said "getting rid of the gas tax entirely" and replacing it with a sales tax is "a realistic thing for us to look at."

"Not as a revenue upper, but as a neutral conversion," Walker said. "With the idea being that that could be stable, versus something that's based on gallons of gas, which continues to go down."
At first glance, I find myself confused. The gas tax is based on how many gallons of gas you buy, but a sales tax would (I guess) be based on the PRICE of the gas. Illinois, Indiana and Michigan already charge a sales tax on gas, among other states, and there's no real difference in what consumers see when they go to the pump (it's internalized into the price). And I don't see how that translates into more money for the state's deficit-ridden Transportation Fund. Here's an example of the difference, using a 10% sales tax on gas, and why it wouldn't be that much of a difference.

Current law
10 gallons of gas at $0.31 tax = $3.10 total tax

Gas sales tax
10% sales tax at $2.71 wholesale = 27.1 cents a gallon
10 gallons at $0.271 a gallon = $2.71 total tax

A sales tax is still mostly based on buying the product, so I don't see where this does anything for shoring up a Transportation Fund deficit that could well be over $1 billion in the next budget. In fact, with gas prices going down and possibly staying there for a while, the move to a sales tax would become more likely to have LESS revenue (since lower price = lower tax). Unless there's some kind of flat amount of tax that everyone would pay, but how would that be figured? On a related note, Walker has generally opposed a Vehicle Miles Traveled system, and a "gas sales tax" doesn't sound like that anyway.

Which tells me at first glance that this is a lame attempt to deflect from bad headlines for Walker in the last week, and an attempt to get the Burke campaign off their game. And a former Mayor of Madison points out that it's an admission by the Walker Administration that they're largely out of one-time gimmicks when it comes to funding the state's transportation needs, mostly because of his stupid fiscal policies in the General Fund.
Walker opposes raising the gas tax and questioned the logistics of a mileage-based registration system. His first two budgets have relied on increased borrowing and general tax revenues to pay for road projects.

But those options will be limited given the state faces a structural deficit heading into the next budget, said Dave Cieslewicz, a commission member and executive director of the Bicycle Federation of Wisconsin.

"His two escape hatches probably aren’t going to be there in the next budget," Cieslewicz said. "It would make sense he would be thinking about a different option."
But the complete lack of detail tells me that Walker's misdirection play should be ignored by the Dems as a serious proposal. But what they can do is ask questions and demand details that maybe smokes out what Walker REALLY wants to do. Because as Capper well puts it, "With Walker, there's more, there's always more."

Stay skeptical, my friends. There are no rabbits left in that hat.


  1. Current gas tax revenue is c. 7m gallons/day x 365 days/year x 30.9¢/gallon ~= $789m/year. So to cover a $1B two-year deficit would require an extra 19.6¢/gallon (presuming no elasticity in gas demand, which isn't a terrible presumption).

    If the current pretax gas price is $2.71/gallon then an exact replacement "not raising taxes" of a 30.9¢/gallon flat tax would be 11.4%.

    In order to fill the $1B hole this way, Walker must be hoping that pretax gas prices suddenly leap to $2.71/gallon x (30.9 + 19.6)/30.9 = $4.43/gallon ($4.94 with 11.4% tax) at the start of the 2015-17 biennium and stay there for at least two years. Since we have no oil of our own, this scenario requires that over $4B/yr extra flow out of state for motor gasoline and oil alone.

  2. What you're pointing out, Geoff, is that gas prices would either have to get very high, or the gas "sales tax" would have to be very high to cover the deficit on its own. This does not seem likely.

    So with that in mind, what's the other shoe(s) that drop here to fill up the Transportation Fund deficit? That's the real question we should all be asking, and Burke rightfully shot down Walker's gimmick in interviews today

    1. Ah, but the gas sales tax couldn't be raised or else it wouldn't be a "neutral conversion".


      Also, Walker's revenue stability argument is plainly rubbish: with our current fixed per-gallon tax revenue, the total is proportional to the gallons of gas sold, and the standard deviation of the last 10 years of that has been just 2.6%.

      With a percentage sales tax, revenue is proportional to the product of gallons of gas sold and the pretax sale price. Over the last 10 years the standard deviation of that has been 28% of the average, more than ten times as volatile.

      The kindest spin I can put on it is that this could be Walker's attempt to put the indexing back onto the gas tax: that was ended in 2006, and a percentage sales tax should in the long run follow something closer to general inflation.