April 08, 2005

Who Pays for Gas Tax Relief in California?

Gasoline prices are ticking upwards again-- and state lawmakers are once again proposing to offset these increases by reducing state gas taxes. The latest incarnation of this idea was unveiled this week by the Speaker of California's Assembly, Fabian Nunez (D). Nunez wants to immediately cut the state's gas tax by 11 cents a gallon, and make up the revenue loss by increasing the general sales tax by a quarter cent. Over time, the Nunez plan would gradually increase the gas tax back to its former level, making this plan a revenue-raiser in the long run.

In the short term, this change won't affect California tax fairness much. The state's tax system is regressive, hitting low-income taxpayers much more heavily than the wealthiest Californians-- a problem that is due primarily to the state's use of regressive sales and excise taxes (such as the gas tax). So the Nunez plan amounts to cutting one unfair tax and increasing another.

But there's another, less-often appreciated dimension of tax fairness that would be made worse by the Nunez plan. Cutting the gas tax and hiking the sales tax amounts to cutting taxes on one particular consumer good, and increasing taxes on everything else people buy. In other words, this is not a tax cut, it's a tax shift-- cutting taxes on drivers and increasing them on everybody else.

Gas taxes, like "sin" taxes on cigarettes and alcohol, serve a social purpose: they increase the cost of driving in general, and driving gas-guzzlers in particular, and make commuters at least marginally more likely to pursue ride-sharing or public transit. Of course, these are long-term goals, and in the short run the likely outcome of rising gas prices is that commuters will get hammered. This is especially worrisome because gas taxes are much less affordable for low- and middle-income taxpayers than for the wealthy. But the Nunez plan would give with one hand and take away with the other-- hardly a recipe for low-income tax relief.


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