Sales Tax Exemptions are Subsidies

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A recent comment thread had the familiar, tiresome morality play about subsidies to drivers and transit.  I think the use of “you are subsidized” as a moral critique is totally bankrupt, but nevertheless there appears to be genuine confusion about the sales tax exemption for gasoline and why that’s a subsidy, displayed by people I have every reason to believe are asking in good faith.

The general sales tax levied on most retail goods is not levied on gasoline. This exemption, according to a 2008 Dept. of Revenue report, amounts to an annual revenue loss of $500m to the State and a further $156m per year to local governments (previous post on this subject). Obviously, the precise value moves around with the price and consumption rate of gas, but in any case this is functionally equivalent to the state writing checks to lower the price of gas.

Instead, the state levies a per-gallon gasoline tax of 37.5 cents per gallon, on top of 18.4 cents per gallon by the Federal Government. Although the state portion is roughly equivalent in magnitude to the sales tax, according to the 18th amendment to the state constitution, it must be used solely for “highway purposes.”

This is a crucial distinction. For most other industries, the products are taxed and the revenues flow into the general fund to support education, public safety, and whatnot. For drivers, the revenues must be used to support driving by providing roads that are (mostly) free at the point of use. This is not a neutral treatment of driving, any more than dedicating all taxes on nails to hammer subsidies would be neutral treatment of the hammer industry.

It’s true that gasoline is hardly the only item that is subsidized through the tax code. The list of exemptions is hundreds of pages long, and government applies more traditional subsidies to things like education and transit. There’s even a non-crazy social justice case to be made for a gas exemption, although like the food exemption we’d be better off repealing it and focusing the revenue on targeted assistance to the poor. But anti-transit folks should drop the martyrdom complex that they’re honorably paying their own way while a bunch of parasitic transit riders leech off of them.

Comments

  1. goodluck says

    i’m wondering if putting G2G pass readers at every freeway on and offramp and interchange to put a small toll on each one and devote that money for maintenance of freeway facilities would fly. it would definetly free up some funds for capital expenditures. it would, of course, really tick off small towns saying it would hurt business and clog city streets in the metro area, but much of the rest of the world does this..

    • Anon says

      Texas does this, and they not only don’t mind it, a lot of people support it, as it keeps highways maintained and allows for quite a few construction jobs. Of course, we’ll ignore the fact that Texas is also very anti-transit.

      • goodluck says

        well i dont know what is worse, anti-transit voters or ignorant voters…(speaking to those that think once a freeway is built is “free”)

      • Anon says

        @Michael You are correct. The larger cities typically have a main, “free” route and a parallel freeway that is tolled, but usually has less traffic. Also, they will have ring freeways that are tolled.

  2. Gary says

    Oh come on! It’s not like gasoline doesn’t have taxes on it. It’s just that we’ve chosen to tax it by volume and not by price.

    That’s not to say that I support the current levels of taxation on gasoline but I happen to think that rather than have a geometric tax rate on energy that a linear one is more “fair” and closer to what I want.

    Since we are on my favorite tax, gasoline, I propose a flat $1 per gallon Middle East War tax. That will fund the military running around the Middle East protecting the shipping and our “right” to buy oil.

    • GuyOnBeaconHill says

      Does the millitary pay excise tax on its fuel purchases? It would be ironic if the largest user of fuel in the USA exempts itself from fuel taxes and then fights a war to maintain our access to petroleum.

      • Matt the Engineer says

        The military is both exempt from fuel taxes, and is able to negotiate for low rates since most fuel purchases go through a single agency to buy in bulk. They’re not just the largest user in the USA, but in the world. By a lot.

        I get the idea behind the government not paying tax – you’re just wasting effort pulling money from one pocket to give to another. But it also removes the incentives that taxes can create.

      • Mike Orr says

        Not if you look at it as the military providing a service. “Your taxes are going paying for this oil-supply line. You don’t want to tax the people who are doing it, do you?” (Caveats: I don’t know if the military is exempt from fuel taxes. And of course, the US gets most of its oil from the Western Hemisphere.)

        The military is also aggressively persuing alternative energy and conservation, because it’s in the unique situation of having remote bases utterly dependent on supply routes through multiple foreign countries that we sometimes have problematic relations with. Rommel’s army in WWII was grounded in North Africa by lack of gasoline.

      • Nathanael says

        The military is slowly but surely trying to remove its oil dependency for the reasons Mike Orr gives. They’re good reasons; I think the first all-solar military could conquer the world.

    • Martin H. Duke says

      Any discussion of the merits of military spending (or lack thereof) is off-topic.

      Just in case anyone wanted to veer in that direction.

    • Martin H. Duke says

      Gary,

      It’s just that we’ve chosen to tax it by volume and not by price.

      Did you not read the post or not understand it?

      • Gary says

        “The general sales tax levied on most retail goods is not levied on gasoline.”

        Did I mis-understand that statement? Did you mean that “gasoline should have two taxes on it? One indexed by volume and one by price?”

        Or did you mean to imply that “gasoline is not taxed… “fairly” “? That you believe that you favor regressive taxes?

      • Brett says

        The post is not complaining about how fuel is taxed (although there is plenty to gripe about there) but about how the resulting revenues are dedicated to a single purpose as opposed to being put in the general fund like most other consumption taxes.

      • Martin H. Duke says

        I’m not making a values based argument on whether there should or should not be two taxes on gasoline; I’m saying that if drivers were truly paying all their costs, there would be too: a general sales tax, just like most other goods, that goes to stuff government does, and a special gas tax that is dedicated to the maintenance and construction of “free” roads. As to how the special gas tax is indexed, that’s not really relevant.

        I can imagine both more regressive and less regressive structures that don’t subsidize driving.

      • Aleks says

        For almost all goods purchased in Washington State, 6.5% of the cost is levied as a tax, which goes to the general fund.

        If you assume $4 a gallon gasoline, then that would translate into roughly 26 cents per gallon.

        However, gasoline is exempt from the sales tax. Instead, it is subject to a 37.5 cent per gallon excise tax, which goes straight to the highway fund.

        Suppose that gasoline were subject to the regular sales tax, but the excise tax was lowered from 37.5 cents (its current value) to 11.5 cents. Drivers would pay the same amount at the pump (modulo gas price fluctuation). But 70% of the money that currently goes to the highway fund would instead go to the general fund.

        That is the argument. It has nothing to do with regressive taxes, and nothing to do with levying tax by price versus volume. The current tax structure on gasoline, combined with the current average price of gas, means that 70% of highway fund revenues are effectively transfers from the general fund.

        So much for drivers “paying their own way”.

      • Bernie says

        That’s just totally wrong. The current structure firewalls the general fund from being raided for State highways. You want a “level playing field” then fine. Drop the gas tax, charge sales tax on gas and fund highways from the general fund. Then you will see subsides for highways. While you’re at it reinstate the sales tax on food. Those free loader eaters are sucking us dry!

      • Martin H. Duke says

        Bernie,

        I think people here are more comfortable with subsidizing food than gasoline, given that we need food to live. That said, it would be much more effective to repeal the food exemption and use the revenue to strengthen our food stamp programs than to give Paul Allen a break on his groceries.

        But in your world, that would be big government, while the tax break isn’t.

        I would be fine with a sales tax on gasoline, no gas tax, and funding highways out of the general fund. Revenue would increase with inflation, there would be carve-outs for transit and other good things, and people like you wouldn’t make meaningless semantic distinctions about what’s really happening.

      • Bernie says

        Martin, if you’re willing to cast in your lot with the roads budget and fund everything from sales tax on everything that would be fine. I’m all for tax simplification; lower rates and no excemptions or what is commonly called a flat tax. It’s true that the per gallon tax doesn’t index with inflation and has been hurt by increased fuel efficiency. Remember though that gas prices also go down sometimes for long stretches. So it’s likely that once you tear down the fire wall other accounts will be raided for roads which far more people care about than transit and social services. And while you’re at it lets not forget the huge renters subside. When we start charging sales tax on rent I think the unfunded portions of 520 and the DBT will be history.

      • Martin H. Duke says

        Well transit is still in its own little walled account and wouldn’t compete directly in the general fund. Highways would hardly be my priority in the state budget but my sense is that it would come out alright, especially since I think sales tax will generate more revenue than gas tax.

        In principle I don’t have a problem with a broad based elimination of exemptions like rent, which by including services I believe would be broadly progressive. Extending it simply to rentals would be regressive. In any case, whatever rental subsidy exists is absolutely overwhelmed by the federal mortgage interest deduction, which is a terrible but popular piece of policy.

      • Bernie says

        Yes, the concept of fairness would extend to everything. I find it odd that you have to pay sales tax to your plumber but not to your urologist. As far as transits firewall, well that’s a local adder so would remain safe. The mortgage interest deduction is federal so it would remain but renters in Washington would be soaked. Unless you taxed payments on loans. Ooh, that opens a can of worms. Really you are buying access to money now with the promise to repay in the future so credit is a purchase; credit costs you money because it is a purchase. Excessive credit card debt is a problem as was over reaching on mortgages. Maybe just such a “sin tax” on borrowing would be a good idea.

    • goodluck says

      Somewhat agree. I’d like to see a tax on vehicle weight. Sure you pay more if your car consumes more, but its something akin to double jeopardy. If everyone drove around in civics we wouldn’t be consuming as much gas, but the fact that commuter in a tahoe consumes 2 times the gas that a civic does (or 1 SOV tahoe moves half the number of people a civic does in the same amount of fuel) and therein lies part of the problem.

      • Gary says

        A tax by weight would help cover the cost of road repair where the heaviest vehicles do by far the most damage. Leading the pack… buses and garbage trucks!

      • Bernie says

        Good idea, that’s why it’s already done. Doh! Vehicles with a gross weight of at least 55,000 pounds (that’s truck + trailer + maximum rated load) is already hit with a federal excise tax on weight. Washington State tacks on an additional weight based fee on Passenger vehicles and trucks.

  3. says

    I’m a transit rider, and I honestly believe I leech off of SOV drivers. I believe they pay their fair share, and I don’t. Especially when it comes to 520 tolls and the gas tax.

    • LWC says

      I’m a driver, and I honestly believe I leech off the general fund to support my SOV miles. Actually, it doesn’t really matter what I or anyone else “believe” on this subject: the fact is that my statement is true.

      • says

        LWC, then it’s agreed. There are levels of leechdom. As a car driver, you leech off the general fund. And us bus riders and 520 bridge-crossers leech off of you car drivers.

      • Matt the Engineer says

        And as a parent, you leech off of everyone else when it comes to school funding. And as a poor person, you leech off of everyone else when it comes to food stamps. And as an airplane manufacturer, you leech off of everyone else by not paying your full taxes. Etc. Etc.

        Looking at taxes as entitlement is a fool’s game. Let’s get back to basics:
        1. Tax sales, property, and income in a way that promotes what we as a society wants to promote and discourages what we want to discourage, yet collects enough to meet our needs into a general fund.
        2. Fund services from the general fund in a way that meets our needs.

        If our tax code were a computer program, it would be spagetti code and the programmer should be embarrassed. And it’s worse at the federal level. Simple and elegant, not complex and ugly.

    • says

      SOV drivers leech of the property tax the same way that bicyclists, pedestrians, and transit users do. And SOV drivers receive a massive subsidy from the general fund for highways. What is more fundamental is how much of a subsidy we think is meeting our goals, is fair, and is sustainable. SOV users in my estimation are not even close to paying their fair share. You don’t even want to know how many billions WSDOT is in the hole for basic maintenance of the system over the next 20 years–or how much is being siphoned from other services despite having a dedicated gas tax to PARTIALLY fund highways. All other users have to come with hat in hand.

  4. says

    Since only 2% of our society or less utilize mass transit at all, it seems to me that calling the other 98% majority who willingly subscribe to a system, perceived to be beneficial to them, as “leeches” is hardly a valid description.

    • Martin H. Duke says

      Which is why the post doesn’t do so at any point, and indeed rejects the whole idea of that terminology.

      • Shane Phillips says

        Maybe he’s just got a really narrow definition of mass transit, haha. Seriously though, 2%? I felt like Bailo’s posts had gotten a lot better since I first started seeing his comments, and then he goes and says something like this.

      • Cheesewheels says

        Did some research, and I come up with a lot of different figures: all between 5 and 12%. If you just figure in the percentage of people who have ACCESS to transit who also use it, it’s more like 25-35%. (This does not count regional services like Amtrak and Greyhound).

    • Alex Francis Burchard says

      Metro Alone carries something like 400,000 per day, even if you consider that as counting everyone twice, that’s 5% of the metro area or 32% of Seattle. Where on earth do you get your numbers. (then add in ST, CT, PT, WSF, Etc) And you are WELL over 2%.

    • Bernie says

      Nationally, more than 6.9 million U.S. employees regularly use public transportation, which comes out to be about 4.9 percent of the nation’s workforce.

      The employment-population ratio is 58.5 percent. So that’s about 3% of “our society” utilize public transportation “regularly”. But what is “mass transit”? Does that include buses? DART? ParaTransit? And “utilize mass transit at all”; if you never step foot on a bus but rode one in college are you part of society that doesn’t utilize it at all? Do you have to use it once a year? What if you drop of your kid at the P&R instead of driving them back to college; are you “utilizing” public transit?

      • Bernie says

        OOPS! I didn’t count the significant number of people who are not in the workforce but use transit regularly; the retired, disabled, unemployed, children and the 1%. Well, maybe not so much on that last one :=

  5. Mike Lindblom says

    This is a discussion that can break two ways. By constitutionally dedicating gas taxes to roads (wholly funding those apart from the general fund), WA state over the years has established a clean political and legal firewall that also protects our education and social services from any pressures by motoring fans to help bail out WSDOT highways.

    • Martin H. Duke says

      Mike,

      I’m basically OK with a special gas tax “user fee” that funds road construction, but the point is that drivers should also be paying a sales tax that goes to the general fund.

      • Norman says

        Why don’t transit users pay any sales tax on transit fares that goes to the general fund?

        Why don’t transit agencies pay any gax tax that goes to pay for the roads that buses use?

        Why don’t transit users pay any tolls to pay for the bridges and highways that buses use?

      • Zed says

        That would effectively increase the operating expenses of transit agencies and decrease their income. Is that what you want? Transit to be more heavily subsidized?

      • Martin H. Duke says

        Because transit is subsidized, because it serves the poor has fewer environmental and health externalities than driving.

      • Bernie says

        Public transit only has fewer environmental and health externalities than driving because it does so much less. If everyone could go anywhere anytime and public transit moved our freight, hauled our garbage and provided life safety support the externalities, not to mention the cost would be astronomical. Restrict private vehicles to a fixed route runing only part of the day and poof, the externalities are on par.

      • Matt the Engineer says

        And if only pigs were large and had trunks, maybe they’d be elephants.

        It’s fundamental to public transit that it doesn’t go everywhere. This not only reduces its environmental impact, but encourages development in a less sprawled pattern.

      • Shane Phillips says

        Norman,

        Since those of us who drive very little or not at all don’t spend our money on gas, more of our money is left over for things that DO have sales tax, so your point is kind of moot.

      • Bernie says

        It’s fundamental to public transit that it doesn’t go everywhere. This not only reduces its environmental impact, but encourages development in a less sprawled pattern.

        So the more it’s restricted the better. Funding for Sounder and WSF (a huge polluter) should be halted immediately. Maybe there should be no bus service outside of census tracts with population less than 8k per square mile. But no, transit advocates are like
        Magenta & Columbia…. “I’ve tasted blood and I want more. More! More! More!”

      • Matt the Engineer says

        It’s always extremes with you, Bernie. Yes. We can build one massive building that houses 6 million people and need no transit other than elevators. That would be best for the environment, but people would likely not be happy. Having a mix of housing options means transit, and the more concentrated the transit lines the more incentive to build densely within reason.

      • Bernie says

        Actually it’s some of the posts on this blog that scream extreme. I’m all for a moderate reasoned debate.

        Having a mix of housing options means transit, and the more concentrated the transit lines the more incentive to build densely within reason.

        I agree public transit is important to building housing options. We have that. Concentrate on making it better which means; don’t expand but focus on where it could work. Covington, Black Diamond, Auburn… loser. Give it up. Use the tax money to buy development rights and focus growth in the already FU areas.

      • Zed says

        Nice straw man, Bernie. When has anyone on this blog advocated for transit in Black Diamond or Covington over urban transit?

      • Bernie says

        When has anyone on this blog advocated for transit in Black Diamond or Covington over urban transit?

        Nice straw man. When has any of the principles on this blog, or you, ever advocated for killing south sounder or ST Express to the X-urbers? No, it’s More, More, More!

      • Nathanael says

        South Sounder’s an intercity line from Seattle to Tacoma via several intermediate cities. It’s an appropriate application of intercity rail technology.

      • Martin H. Duke says

        Bernie,

        When has any of the principles on this blog, or you, ever advocated for killing south sounder or ST Express to the X-urbers?

        If we can set up a system where exurban taxpayers send their money to Seattle to build urban rail, we’ll support it. But I’m not holding my breath.

        We’re absolutely for reducing exurban and low-density Metro service to serve dense corridors. Shifting transit resources into dense, direct, rapid, priority corridors is one of the three primary themes of this blog, together with more density and growing the overall transit pie.

      • Bernie says

        Never has there been a post about cutting transit service. Pierce Counties recent restructure where exurban areas voted to withdraw is a prime example. Where’s the post on how great this is because the sprawlers will return to the city? A new Amtrak station in Stanwood, yea!

        If we can set up a system where exurban taxpayers send their money to Seattle to build urban rail, we’ll support it.

        Again, it’s always more. How about just killing North Sounder and putting the money saved into the Link North Corridor?

      • Martin H. Duke says

        Bernie,

        Have you never read a post about the 42? About eliminating low productivity service? Please, read anything by Bruce Nourish!

        I’m in favor of PT contraction.

        If Snoho was interested in swapping Sounder for significantly more Link, I’d be open to that. But there are only so many hours in the day. If you think it’s an important subject do the homework and write a guest post.

      • Bernie says

        I tend to skip over stories about specific inner city bus routes I know nothing about. I do however try read and understand the majority of the cost reducion/service improvement posts by Bruce Nourish. These are a shifts in service hours not cuts. The point was raised in the debate over the special MVET bailout for Metro that without actually cutting their allowance the same business as usual attitude would prevail. It seems that’s exactly what’s happening to the limit of funding available.

        I’m in favor of PT contraction.

        Saying “It’s always sad when service levels shrink
        is a far cry from beating the drum to cut off ex-urban transit service. Again, efficiency was only forced by a downturn in expected revenue.

      • Mike Orr says

        Yes, many people here have advocated eliminating Sounder (especially North) and putting the money into extending Link to Everett and Tacoma and adding more trains if necessary. That would even give another justification for Link park n rides because it’s just replacing a Sounder park n ride that would otherwise exist. If we want people to use transit more in their daily lives, it has to run all day and frequently, and it has to run in a central location where the bulk of the population lives. In Snohomish, that means eastern Edmonds, Mountlake Terrace, Lynnwood, and south Everett, not Edmonds and Mukilteo. In the south end, that means a direct route to Tacoma that doesn’t detour to Auburn, Sumner, and Puyallup.

        We haven’t even explored a Link shuttle in the Kent Valley, say from Boeing Access Road – Southcenter – Kent – Auburn, perhaps on the edge of the BNSF ROW, or West Valley Highway or 167. (To Renton and Rainier Beach instead of Southcenter?) That would provide the all-day service that Sounder doesn’t, the speed that the 150 doesn’t, and it would be relatively cheap because there are lots of north-south ROWs in the south end to choose from.

  6. mic says

    If anyone wants a lesson in dedicated funds (source and use) for various entities, just look through the RCW’s. They have it down to an art form. Or read the fiscal notes attached to most bills. Roads and dedicated fuel taxes are just one of thousands of examples. Pick you poison.

  7. lazarus says

    I always thought that local municipalities should be allowed to extend the local portion of the sales tax to gasoline, and that the revenue so raised should flow into the municipal coffers to be spent however that municipality deemed necessary – be it city roads, services or expanded transit.

    But bottom line, gas is way too cheap in this country. I think it is really important to get the price of gas up to something that more accurately reflects its true cost.

    • Bernie says

      Local municipalities already have the authority to impose a modest per gallon gas tax. In practice I don’t believe it’s used anywhere in the State. Collecting a sales tax might be problematic. Although I’m sure today’s electronic pumps could handle it stations are accustomed to setting the tax rate per gallon. It’s also an additional accounting burden since sales tax is payed by the consumer and excise tax on gasoline is paid by the seller. The bottom line is, the ability to raise taxes on gas is already there but nobody has the political chutzpa to impose it.

      • lazarus says

        I’d propose extending the local sales tax and not a local option excise tax to gasoline. That way the revenue so generated wouldn’t be restricted to roads and could be spent on transit or services.

        The local option excise tax is still restricted to roads, which limits its appeal to municipalities like Seattle. But allow the city to spend the revenue on anything, and the will to impose the tax would be there.

      • Bernie says

        Any additional revenue that Seattle could put toward it’s road funding frees up money that can be used elsewhere. There’s nothing that says you have to increase the amount of spending on roads by the amount you collect in gas tax. This would only be a limitation if the gas tax exceeded the amount coming from the general fund for transportation; it wouldn’t even be close.

      • lazarus says

        Ya, the citizens really love it when you raise taxes for one thing just so you can intentionally divert taxes to a totally different and unrelated thing. It increases faith in government and makes everyone believe that government is transparent and accountable – NOT!

        And we just raised (predominately) road money in Seattle via Bridging the Gap. It just won’t be that easy a sell to raise more dedicated to roads just so that money that is currently being spent on roads can be devoted to non-road uses…..

        Ya, is it any wonder that nobody has any faith in government anymore…

      • Mike Orr says

        Why is paying for transit and roads out of general funds worse than paying for police, education, parks, libraries, courts, etc, out of general funds? If we went to a complete user-fee system, parents would have to pay tuition at “public” schools, the 911 dispatcher would ask for your credit card number before sending help, parks would have an entrance fee, and libraries a subscription fee. Of course, people would not be willing to pay enough fees to cover park maintenance so many parks would close. The poor would not have access to libraries or education. And would the police charge a fee to everyone they stop or arrest? We decide through our voting that we want these services to be provided uniformly across the board to everyone, and we pay an indirect tax to fund them. Why is this OK for some kinds of services but not for transit? It’s not like people can function in society without the ability to get from place to place at a speed faster than walking.

  8. Norman says

    Transit users pay zero sales taxes on their fares.

    Transit users pay zero tolls on roads and bridges their buses use.

    Transit agencies pay zero gas and diesel taxes (at least local).

    Motorists pay sales taxes on autos, tires, other parts, maintenance, repairs, etc.

    Motorists pay license fees.

    Motorists pay the MVET.

    Motorists pay the gas tax.

    You add up all the various taxes and fees motorists in WA pay, and that amounts to more than the total spent on roads and highways in WA state.

    Motorists also pay the entire cost of their cars, gasoline, parts, maintenance, etc. plus all the various taxes and fees levied on those expenses.

    You add up all the various taxes and fees that transit users pay for using transit, and that adds up to ZERO.

    Transit users pay about 1/4 to 1/3 of the OPERATING cost of their transit through fares, and NONE of the capital costs of their transit through fares.

    When motorists pay an MVET as a cost of driving, all of which goes to ST to subsidize the stupidly expensive Link light rail, Sounder Commuter Trains and very expensive ST Express bus, who is leeching off whom?

    Who is paying, and who is being subsidized by the MVET?

    Who is paying and who is being subsidized by the tolls on the 520 bridge?

    • Martin H. Duke says

      I’m wasting my breath, but Norman, you didn’t engage with the argument at all. That transit is subsidized is not a matter of debate, and it’s explicitly stated in the post. Meanwhile, you manage to not even mention “tax exemption” in your screed.

    • Cameron says

      1. Even if transit agencies were taxed on gas AND fares had sales tax applied, the revenue generated would absolutely pale in comparison to SFO usage.
      2. Buses aren’t the reason 520 needs to be replaced.
      3. See #1
      4. Congratulations. You chose the more expensive option.
      5. Congratulations. You chose a transportation mode that causes ~30,000 deaths a year, not counting obesity and pollution-related societal costs.
      6. Congratulations. You chose a transportation mode that causes wars over it’s fuel.

      It’s not that transit is cheap, its just the best alternative to complete energy irresponsibility

      • Gary says

        “It’s not that transit is cheap, its just the best alternative to complete energy irresponsibility”

        Add to it bicycling via a bikeshare program and you get a real winner.

    • Mike Orr says

      There’s a fundamental value to the community of citizens being able to get around so they can hold jobs, buy things, participate in the city’s cultural life, and not seethe with anger that they can’t do these things. You make it sound like everybody should drive if they can afford it, or walk or bike if they can’t.

  9. Bernie says

    this is functionally equivalent to the state writing checks to lower the price of gas.

    This is functionally equivalent to government claims that a budget that increases by a million dollars is a one million dollar cut because it could have been raised by two million. The State doesn’t provide 6% of the gas. Taking somebodies money and giving it back is not a subside. Taking somebodies money and giving it to someone else is a subside. The State highway budget is one of the few, perhaps only fund that doesn’t take taxes from an unrelated use. The gas tax is a protection against the highway fund being subsided by the general fund. Although drivers still pay sales tax on the price of the car, tires, oil, service and fuzzy dice.

    • Martin H. Duke says

      Bernie,

      I’m not saying the gas tax is a subsidy. I’m saying the lack of sales tax is a subsidy. If I don’t buy gasoline, I have to pay more in taxes to cover government services because people who do buy gasoline are getting a break.

      • Bernie says

        The lack of something is a something. Amazing logic, just like government “cuts”; I could have taken more but I didn’t so it’s a cut. The lack of a sales tax on a Discover Pass is a subside to the State Parks. Until a couple of years ago you could park for free and therefore there was no subside. But now that there’s a user fee we’re subsidizing the parks because of a lack of a sales tax on the permit. You’re approaching this from the idea that on the eight day God create sales tax on all tangible goods when in fact the sales tax is levied on selected goods and services to subsidize things that can’t or we feel shouldn’t be payed for by user fees.

      • Martin H. Duke says

        Bernie,

        For any given level of expenditure, lower overall tax rates are the most economically efficient. Special set-asides introduce distortions. I’m for eliminating exemptions unless there is a compelling reason not to. Getting people to burn more fossil fuels seems like a foolish incentive program, no?

        Do you honestly not perceive the tax breaks given to certain large employers at a subsidy, offered at the expense of the rest of us?

      • Charles says

        Just a quibble Martin, “Lower over all tax rates are the most economically efficient” is a canard that has been disproven. Also see here. While Supply-Siders and old style Austrian austere types might put forth that line, it is Keynesian policies with progressive tax rates that has been shown to have produced the most vibrant economic periods and wider prosperity in the last 80 years.

        What is rather ironic is that “Austrian” supply siders say they want no government interference in markets via taxation but their natural constituencies are at the head of the line to demand “incentives” to produce. Particularly when the activity is already profitable. For example, the $4 Billion annual tax credits the Oil and Gas industry receives in addition to very favorable treatment in federal leases and the annual exploitation of the Strategic Petroleum Reserve whereby the industry amasses significant profits off of the taxpayers.

      • Bernie says

        What is rather ironic is that “Austrian” supply siders say they want no government interference in markets via taxation but their natural constituencies are at the head of the line to demand “incentives” to produce

        Huh? Who “they” and “their natural constituencies”? Easy to make up Marxist rhetoric. Less of an increase == cut. Failure to tax at the maximum rate == subsidy. Time to start the urban fallacy wiki.

      • Nathanael says

        Bernie, I have no idea what you’re mumbling about, but Charles is simply right historically; progressive income taxation, Woodrow Wilson style — high taxes on those with lots of money, low taxes on those without much money — seems to give the best overall economic results, better than other methods of taxation. Compare time periods, compare countries; this is true worldwide and throughout history.

        There are some good economic theories as to why (mostly related to propensity to spend vs. propensity to stuff under mattress), but the important point is that it’s empirically true.

      • Martin H. Duke says

        Charles, you missed my point. The emphasis is on the word “overall.” A high tax rate riddled with exemptions and loopholes is far less efficient than a lower rate with few or no exemptions.

        However, all else being equal low taxes are better than high ones. If you can deliver the same services with a lower tax burden that’s a good thing. I make no claim to know what the optimal level of spending and revenue as a percentage of GDP is.

      • Martin H. Duke says

        Bernie,

        I don’t know why you’re trying to pick a fight with me over the language of cuts vs. reductions in the rate of growth, but as for “failure to tax at the maximum rate”: let’s reduce the taxes on your employer’s competitors but not your employer. Don’t you think that’s a subsidy to them? Isn’t the lack of any tax applied to transit purchases a subsidy?

      • Bernie says

        No, not taxing transit services isn’t a subsidy. First off you can’t get blood from a stone meaning transit agencies have no money to give. If you give someone $11 and take $1 back it’s the same as giving them $10. The transit subsidy comes from the 1.8% general sales tax. It’s pretty simple. You take money from one group and give it to someone else. Taking money from someone and giving it back is not a subside. That’s why the money someone pays for bus fare isn’t a transit subside.

      • Zed says

        “Taking somebodies money and giving it to someone else is a subside.”

        Not exactly the definition of subsidy. But good job on re-wording it in to conservative scare talk.

      • Charles says

        Martin, I don’t disagree that a lower tax burden is better for the economy. But we are in a situation where we cannot deliver the services we’ve required our government to deliver with the amount of taxes that are collected. Governments have played the borrow the money game to the point where we can no longer afford to do that either. So, now because of this structure and the political situation where those that are making the income are not paying “their fair share” towards the maintenance of the government, our infrastructure is crumbling, our schools are failing, and critical services that government provides are at jeopardy.

        The loopholes you complain about are the result of that skewed political system that gives excessive power to those with more money.

        I was concerned that you were repeating a meme put forth by conservatives that advances the continuation of policies that got us into this situation.

      • Charles says

        @Bernie, who are you calling Marxist? What is this equating Keynes with Marx? Keynesian economics while putting forth progressive taxation still puts forward the notion of private markets, private companies, private sector employment and private capital formation. It also advocates that the role of government to act as a counterbalance in keeping markets in check and that employment remains at near full levels. That is not the same as centrally planned economies with state enterprises.

      • Aleks says

        Charles,

        I’m as liberal as you get, but I think you’re missing part of Martin’s argument. The key is, for a given level of expenditure, it’s better to have a broader base than a higher rate.

        All that means is, if you want to raise $100, it’s better to do so by asking 100 people for $1 than 10 people for $10.

        Of course, if you have $100 and need to have $1000, then raising rates is probably your only option. But in general, closing loopholes is a great way to raise money that has a much smaller distortionary effect than raising rates.

        I’m all in favor of raising tax rates, since I think they’re too low no matter what. But I’m also in favor of broadening the base, such as by eliminating the mortgage interest deduction, and eliminating the tax exemption for health insurance benefits, and eliminating the ceiling on Social Security and Medicare payroll taxes (or even better, eliminating the concept of payroll taxes entirely, in favor of funding those services out of the general fund).

        But it all boils down to the same thing: if you need money, you can always choose between asking more people and asking for more money from each, and the more you can choose the former, the better.

      • Charles says

        @Aleks, the only problem with your model is that 10 people out of that 100 have collected $65 and the remaining $35 is shared among 90 people. Is it right to ask each of 100 people to pay $1 or is it better that the ones collecting the bulk of aggregate income pay a larger share of the taxes needed? I agree that most people should contribute something but those making the significant portion of the income pie should be paying more.

      • Martin H. Duke says

        Charles,

        The loopholes you complain about are the result of that skewed political system that gives excessive power to those with more money.

        It is way, way too easy to just blame the corrupt wealthy. These loopholes and exemptions — especially big ones — are popular. If you put a measure on the ballot to repeal the gas sales tax exemption, it would be annihilated. The federal mortgage interest deduction is very popular. It goes on.

        The special carve-outs for Boeing and banks and bull semen are trivial by comparison.

      • Aleks says

        Charles,

        The tax base is generally expressed in terms of dollars, rather than people. So a better version of my example would say, if you’re a mayor and you want to raise $100, and the total income of your city is $1000, it’s better to ask everyone to give you 10% of their income than to ask 10% to give you 100% of their income.

        Yes, there are progressivity issues too, and I’m fully in favor of progressive tax rates. But what I’m not in favor of is shrinking the tax base, by classifying larger and larger portions of the economy as tax-exempt.

    • lazarus says

      Total bunk. The roads are not funded 100% by the gas tax.

      If they were then the gas tax would need to be a lot higher.

      • Bernie says

        Duh! Try to get it out of granny gear. The State highway fund is funded primarily by the gas and supplemented by other user fees, like licences and tolls. It is not funded by the State sales tax or money from timber sales or lottery tickets which are (or were originally) earmarked for education. But unlike the fence around State spending on highways education is eligible for additional funding from general revenue. “The roads” includes local roads which are funded locally primarily through property taxes having little to do with sales tax and nothing to do with the State sales tax.

  10. Matthew 'Anc' Johnson says

    Are the costs of maintaining Centcom and the 5th Fleet included in the price of gas?

    • Nathanael says

      Nope, they’re funded by borrowing.

      The interest on the bonds is funded from federal income tax, mostly.

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