Fuming over gas prices? Don't count on a tax break
ALBANY, N.Y. (AP) — How would you like a 33-cent drop in the price of a gallon of gas?
"Hell, yes!" says Su Ramgoolam, a 34-year-old mechanic from Schenectady, N.Y.
Not so fast.
Whenever gas prices get near a rounder and more punishing number — $2, $3, $4 a gallon — there is talk of temporarily easing state gas taxes or lifting them altogether for a time, even if it might cost a state desperately needed tax revenue. Lawmakers in at least four states are bringing it up again as this year's summer travel season approaches.
Ramgoolam's all for it.
"For me, I'm not making that much," he said recently, standing under a blue Mobil sign offering gas at $4.07 a gallon. "You can feel it."
But there's no definitive body of evidence that a "gas tax holiday" helps or hurts either drivers or state coffers.
"It's a teeny drop at the pump," said Patrick DeHaan, senior petroleum analyst for GasBuddy.com, a watchdog and research site on gas prices. "There is a greater risk to the state than there would be a likelihood of prompting people to go on vacation."
Politicians in New York, Indiana, New Hampshire and Illinois are talking about suspending part or all of the state and local taxes that can add 14 cents to nearly 50 cents to a gallon of gas, on top of the 18.4 cent federal tax.
It's been done before.
Florida in August 2004 nipped its share of the gas tax as prices lurked around $2 a gallon, up from about $1.50 in late 2003. Indiana lifted its state tax from July to October 2000, Illinois from July through December of that year. For a month in 2005, right after Hurricane Katrina scattered evacuees across the South, Georgia suspended its share of the gasoline tax.
New York's bill, proposed by Assemblyman James Tedisco and Sen. Greg Ball, both Republicans, would create a gas-tax holiday for 12 days around Memorial Day, Independence Day and Labor Day — some of the heaviest travel days of the year.
The sponsors and the National Federation of Independent Business said it would give taxpayers a break, encourage vacation spending and could even draw out-of-state dollars from tourists and those in nearby states seeking to fill up.
But in these days of tattered state budgets, it's harder even to propose the holiday as states try to protect already flat — or falling — tax revenues, and the fallout of another midyear deficit would force still more spending cuts that could trump any political payoff.
All states charge a fixed excise tax per gallon of gas that doesn't change the revenue regardless of the price of gasoline. Four states — Indiana, Michigan, California and Illinois — also charge a percentage sales tax on the total purchase of gasoline.
In Indiana, Democratic Gov. Frank O'Bannon suspended the gasoline sales tax in 2000 when prices reached about $1.80 per gallon, a painful bite at the time despite the nostalgia it stirs now.
It saved motorists $46 million but cost the state the same amount of lost revenue as the economy was slowing and Indiana's budget surplus was dwindling.
Gas tax holidays are easy pickings for politics: Supporters can tell voters they're looking out for the little guy while opponents, even at the highest level of government, can criticize it as a feel-good, do-nothing stunt.
This year, when House Minority Leader Patrick Bauer, D-South Bend, proposed suspending the sales tax and state excise tax on gasoline, Republicans quickly shot down the idea, saying it would cost the state too much.
Supporters acknowledged it could cost the state $200 million while the state's budget office and opponents said the cost would top $300 million.
"The real problem is not our tax," said Rep. Jeff Espich, R-Uniondale. "It wouldn't make much difference."
Nadine Brown, a 53-year-old phlebotomist at Memorial Hospital in South Bend, Ind., said she thinks lawmakers there should have suspended the tax when it came up this legislative session.
"God, we can barely afford to put it in the tank now," she said while gassing up her van at a cost of $4.14 a gallon. "They have so much money, they can put gas in their cars. But what about the little man on the totem pole?"
Amy Baker, coordinator of the Florida Legislature's Office of Economic and Demographic Research, said the one-month reduction in that state's gas tax in August 2004 "did achieve its purpose."
"There was some pressure on price" while prices in neighboring states increased, she said.
In 2008, with gas prices topping $4 a gallon , presidential candidates Hillary Rodham Clinton and John McCain supported a federal gas tax holiday. The eventual victor, Sen. Barack Obama, accused them of pandering to voters by supporting a "gimmick."
Reporters reminded Obama that he voted for a gas tax break in 2000 in the Illinois Legislature, when prices reached $2 a gallon.
New York's bill would take 33 cents off the price paid at the pump, but the cost in lost revenue is harder to figure. The legislation says a holiday would cost $19 million, but the administration of Democratic Gov. Andrew Cuomo suspects it would be much more.
In 2006, under public pressure and the specter of $5 gallons of gas, New York capped its share of the sales tax on gasoline.
"Not paying a gas tax is a nice idea," Cuomo said. "The question is how much does it cost and this is a state that is functionally bankrupt."
Some motorists, even those who say they could use the break, worry about the long-term cost.
Kenni Hayes, 35, of Troy, N.Y., has enough mistrust of government's handling of tax dollars to avoid jumping at a gas tax break. She agrees with Cuomo's concern about losing uncalculated millions in state revenues.
"People might think it's a good idea for now, to give us a tax break of a minute and enjoy our summer," she said, filling up her SUV with $4.07-a-gallon gasoline at a Hess station. "But it's only temporary."
Consumers, small businesses and the tourism industry would probably benefit in the short term, said James M. Sallee, an assistant professor in the Harris School of the University of Chicago who researches economics and taxation.
But any gains would be probably be offset by people who timed fill-ups for the holiday, leaving the state to lose out on revenue just before and after a holiday, he said.
In New Hampshire, where the gas tax is 18 cents, House Republicans proposed dropping it a nickel from May through the end of June , but the measure is held up in procedural jockeying. State transportation officials estimate the cut would cost $6.6 million.
Illinois, which charges 19 cents a gallon in taxes plus 6.25 percent in sales tax, had a measure introduced to lift the sales tax for six months, but there is little chance of success in the Legislature where lawmakers from both parties oppose it.
New York's gas tax is second only to California. Compared with its neighbors, it's 33 cents per gallon more than New Jersey, 24 cents per gallon more than Massachusetts, 22 cents more than Vermont, 15 cents more than Pennsylvania and 2 cents more than Connecticut, according to the national Tax Foundation watchdog group.
Ramgoolam understands the plight of government and the perils of cutting out state revenue, but he knows his own budget better.
"Maybe a compromise?" he said. "Maybe just 15 cents off?"
Contributing to this report were Associated Press reporters Christopher Wills in Springfield, Ill., Tom Coyne and Deanna Martin in Indianapolis, Adam Weintraub in Sacramento, Calif., Bill Kaczor in Tallahassee, Fla., and Bob Salsberg in Boston.