Gas Tax Plans: More of the Same

S.C. POLITICOS HAVE  PRODUCED AT LEAST FOUR MAJOR
PLANS TO “FIX OUR ROADS.” NOT ONE OF THEM
WILL ACCOMPLISH THAT GOAL. HERE’S WHY.

How would a massive tax hike fix all our roads and bridges and cut our income taxes? It won’t. But that hasn’t stopped South Carolina politicians from pushing multiple versions of this discredited idea.

Governor Nikki Haley blessed the idea of raising the state’s gas tax – up to that point it was not seriously considered – and a slew of complicated “tax swap” and otherwise revenue-raising plans followed. Most of them promise to raise one tax now while cutting another down the road. The chief problem with the whole swap idea – apart from its fundamental disingenuousness – is that it depends on a robust economy. If the projected tax revenue doesn’t add up to the amount cut from other taxes – a very likely outcome if recent years are any indication of future economic growth – all you’ve accomplished is a tax increase.

So: what are these plans, and what kind of assumptions are they based on?

Haley plan

• For the governor’s plan to be implemented, South Carolina incomes must grow by 4.3 percent every year starting in 2016. But according to the most recent data available, South Carolina per capita income growth has actually averaged less than 1 percent when adjusted for inflation (2008-2012).
• More than 210,000 new income tax filers will have to work in South Carolina. That assumes there will be a 1 percent growth annually in new filers. That’s the amount by which the entire population grew per year from 2010 to 2014.
• The legislature will have to implement the tax cuts over ten years. There is no way to guarantee that the cuts won’t be suspended, especially if there is any drop in revenue for the General Fund from any source.

House plan

• The House proposed a bizarre swap to tax the wholesale price of gasoline but reduce the cent-per-gallon tax. By taxing the wholesale price of gasoline, the state is able to increase the tax along with the price of wholesale gasoline. This tax will be levied at the pump, however, and as the price of fuel increases the tax burden would increase as well.
• The House also proposed a tax swap by incrementally indexing state income tax brackets over a two-year period. The estimated savings for the average taxpayer amounts to $48 by year two.

Senate plans

The current Senate plan that passed the Finance Committee does not contain any tax relief but rather imposes a huge gas tax hike and an increase in multiple other fees. But Senate Republicans have released a compromise plan, the details of which are available in a press release. The compromise is largely based on the Senate Finance plan, but with a tax swap component.

• The compromise plan relies on BEA projections of revenue growth of 4 percent annually over the next “several” years. Real economic growth (adjusted for inflation) from 2003 to 2013 averaged around 1 percent, with the highest growth at 3.1 percent from 2010-2011.
• Between 30 to 40 percent of the gas tax will have to be paid by out-of-state motorists. That’s the amount Senate supporters say already comes from motorists traveling in South Carolina from other states, and they are relying on it to make their numbers work. But that figure comes from a 2012 report produced by a task force comprised mostly of representatives of the transportation industry, and although the figure is referenced there is no documented evidence cited in the report. Even if true, that figure would likely include cross-over traffic from Georgia and North Carolina – which may well decrease when our gas prices rise with the tax increase.

All the “swap plans” are based on projected collections, not actual rates. While the lump sum may average out, the actual rate costs won’t necessarily do so for many taxpayers.

And when considering the various funding plans on offer, remember, too, these salient facts:

• The Senate plan would index the gas tax for inflation, meaning the price could rise as much as 2 cents per gallon every year.
• The State Transportation Infrastructure Bank (STIB) – which borrows money for new construction and expansion – will receive more than $150 million this year. No plan exists to eliminate the STIB, which, according to the most recent available data, has spent more than $4 billion to fund projects in only 10 counties.
• There is no plan to completely eliminate the DOT Commission, which is currently nominated by a committee of unaccountable legislative leaders and elected by legislative delegations.
• One senate proposal would allow the governor to appoint the Commission but would still empower legislative leaders to “qualify” those commissioners, meaning those same lawmakers would still have effective control over the agency. The House plan would have created a similar arrangement, but with 12-year terms for commissioners.

The right reforms

• Completely eliminate the unaccountable DOT Commission.
• Give the governor appointment power over a Secretary of Transportation, and empower the Senate to confirm the governor’s choice, not limit her choice to its favored candidates.
• Require full transparency for all priority lists, every project and contract and all expenditures.
• Completely eliminate the STIB, which is incurring massive debt and is primarily responsible for prioritizing expansion and new construction over maintenance.
• Reduce and phase out federal matching projects that don’t allow the money to be used for maintenance and/or repair.
• Consolidate all sources of revenue into one and allocate on clear formula of need.

Absent these reforms – without compromise or watering-down – there will be no change in how roads are managed. If that’s the case, taxpayers will be paying a massive tax increase with no improvement in their roads – and there is little chance the promised income tax cuts will materialize.

Like this analysis? Sign up for our weekly e-bulletin here.