The Georgia legislature adjourned weeks ago, but one of the key bills to emerge from the 2015 session, the Transportation Funding Act of 2015 (HB 170), continues to make headlines as it awaits the Governor’s signature. The other day, PolitiFact Georgia stepped into the fray, weighing in on whether the bill’s revenue enhancements counted as taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es, fees, or both (full disclosure: I was interviewed for the piece). Similarly fraught is the question of just how much more Georgians will be paying at the pump. Before Governor Nathan Deal (R) acts on the legislation—he is on record saying he’ll sign it—let’s take a look at what it does, and what we know about what it might cost taxpayers.
Currently, Georgia’s excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on a gallon of gasoline stands at 7.5, unchanged since 1971. In fact, this excise has undergone very little change over the years: it hit 6 cents per gallon all the way back in 1929, when the state tied with Florida and South Carolina to heavy what was at the time the highest gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. in the nation.
But Georgia’s 7.5 cent per gallon excise is far from the whole story. Whereas in most states, gas taxes are levied in lieu of the general sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. , Georgia also imposes a 4 percent sales tax on gasoline and permits local option sales taxes that tack on another 3-4 percent. At $2.47 per gallon (AAA’s most recently reported statewide average price, which is tax-inclusive), that’s 23.5 – 26 cents per gallon in state and local taxes, which positions the state almost dead center on gas tax burdens according to the American Petroleum Institute.
House Bill 170 scraps this system, establishing an inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. -indexed excise tax of 26 cents per gallon, exempting motor fuel from the state sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , and phasing out local option sales taxes on gasoline with the exception of an optional one percent levy on the price of a gallon of fuel up to $3.00. However, a few local sales taxes in excess of the 1 percent cap will be grandfathered in until they expire in a few years.
At current fuel prices, Georgians would be paying about the same amount of taxes on a gallon of fuel under HB 170 as they are now (assuming a 4 percent local levy, the tax cost per gallon is nearly identical), should localities not exercise the new local option. Assuming they do, taxes per gallon would be about three cents a gallon higher for most motorists under the new system, and at slightly higher gas prices, the tax cost would reach a break-even point.
So why did legislators bother? In a word, indexing.
Under HB 170, the 26 cent per gallon excise will be adjusted annually based on two metrics: the construction cost index and fleet year-over-year change in miles per gallon. In other words, the tax will change with federal estimates of the costs of road construction and be adjusted to account for state estimates of increases in fuel economy. This differs markedly from most indexing methods, which key to the Consumer Price Index (CPI), and seem likely to facilitate increases in excess of the CPI inflation measure.
The bill also shifts more funding to the state’s dedicated transportation fund, as a portion of the current sales tax on gasoline goes to the general fund, whereas the excise is earmarked for transportation. The bill also includes new fees on heavy trucks and alternative fuel vehicles.
Unfortunately, Georgians remain somewhat in the dark on the increased tax burden under HB 170. The Georgia legislature does not publish fiscal notes online, although they are available by request. Curiously for such a significant piece of legislation, no effort was made to keep up with revisions to the bill, so the final fiscal analysis legislators received on the significant, much-discussed Transportation Funding Act of 2015 was significantly out of date and predicated on tax rates that hadn’t been included in the bill for some time. The final fiscal note also failed to take into account the disallowance of new local option sales taxes, a significant feature of the bill, other than to note two months ago that “[e]stimated impacts on these effects are in development.”
Some reports have called the bill a $900 million a year package; others go with $1 billion. The outdated fiscal note, predicated on a 29.2 (rather than 26) cent per gallon excise, came up with about $710 million in the first year. None of these estimates capture the actual increased burden on taxpayers, as they do not take into account the partially offsetting phase-out of taxes at the local level.
Fuel taxes conform to the benefit principle of taxation, and Georgia would do well to dedicate a greater share of its fuel tax revenue to transportation. Many other states, moreover, have deemed it necessary to combat the erosion of gas tax revenues due to inflation and greater fuel economy. The people are done a disservice, however, when so much uncertainty attaches to an issue of this magnitude.Share