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PLAYING POLITICS WITH PAIN AT THE GAS PUMP
The skyrocketing cost of gasoline has recently dominated not only the Presidential debate, but has emerged as a key issue with state lawmakers in Albany. At the national level, Presidential wannabes John McCain and Hillary Clinton have called for cuts to the federal government’s gas tax. In New York, Senate and Assembly Republican lawmakers have proposed a cut to the state’s gas tax, too. There can be no doubt that drivers are feeling pain at the pump. Gas prices have more than doubled over the past couple of years, and now stand as the highest prices ever. The $4 per gallon price is undoubtedly coming soon. In a downturn economy and with gas taking a bigger chunk out of budgets, there is tremendous political appeal in arguing for a cut in gas taxes. At the federal level the gas tax is around 18 cents per gallon; here in New York the state tax is about 33 cents. Advocates are proposing that these cuts go in place for the summer months, helping Americans to pay for their travel plans. Seems appealing, but will it work? Let’s look at what we know. First, let’s put aside the environmental costs of driving and just look at the direct financial costs. Estimating benefits from a gas tax cut is tricky. The benefits can be vastly different for those, say, who drive a SUV versus someone driving a hybrid, or who lives in a rural area versus a city dweller. But in order to get a ballpark figure, let’s talk about the average driver. According to the American Automobile Association, the typical car gets about 24 miles per gallon and is driven 12,000 miles per year, so its driver purchases around 550 gallons of gas per year. At $4 per gallon, that driver spends $2,200 annually. He or she pays about $101 in federal gas taxes. New Yorkers pay an additional $182 in state taxes. The proposals would cut gas taxes from Memorial Day through Labor Day. If enacted, drivers would see their taxes reduced by roughly 25% for the three month period. Thus, summer driving savings ring up at about $26 for federal taxes and $45 in state taxes per car for a combined savings of about $70. Indiana and Illinois cut their gas taxes in 2000. The expectation for both the Indiana and Illinois governments was a sharp and sustained decline in prices at the pump. Closer to home, research has cast doubts on the benefits as well. According to an analysis by the chief fiscal officer of Onondaga County, Syracuse-area drivers saw no significant savings at the pump during the two-year period that the county gas tax was cut. The analysis compared gas prices paid by Onondaga drivers to those paid by drivers in the upstate counties of Erie and Monroe -- which did not cut gas taxes. The analysis found no price change from the gas tax cut. In an interview with the Syracuse Post Standard, the Onondaga official said he didn't know exactly who pocketed the more than $20 million in sales tax savings but it wasn't consumers. The money got gobbled up somewhere along the gasoline supply chain, from the oil companies to the wholesalers to the service station owners, he said. In addition, there was evidence that the county budget hole created by the gas tax cut was filled by increased property taxes. As a result, Onondaga is getting rid of its gas tax cut. Gas tax cuts will have a big impact on the federal and state budgets – an estimated $9 billion hit to the federal budget and over $600 million to the state budget. How will those holes be filled when both governments are already deeply in the red? Probably with cuts to programs that benefit those who need the most relief from gas taxes – individuals of modest means. If you want to save money driving this summer, use common sense; don’t fall for election year political posturing. Instead, drive less, check the air pressure in your tires, and slow down. That’s all for now. I’ll be keeping an eye on the Capitol and will talk to you again next week. |
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