Raise state gas taxes, cut income taxes
The Utah Taxpayers Association is proposing a four-pronged approach to addressing state transportation issues. These prongs are
1. Congestion pricing
2. Transportation corridor preservation
3. Prioritization of rails and roads projects based on cost-effectiveness of reducing congestion.
4. Significantly increasing gas taxes while cutting income taxes to maintain revenue neutrality
We've discussed these issues in previous posts, and we'll discuss them even more in the future. Today, we would like to discuss the fourth prong, increasing gas taxes while cutting income taxes. This would be revenue-neutral and would not decrease K-12 education spending even though individual income taxes would be cut.
Why raise gas taxes?
Up until the early 1990s, Utah relied almost entirely on gas taxes and other user fees to fund state transportation needs. In FY2008, the state will be spending almost $790 million from the state general fund (about 88% sales taxes when earmarks are included) on transportation. The split between one-time and ongoing revenues is about 50-50.
Like congestion pricing, gas taxes expose government's real cost of providing transportation infrastructure and maintenance. As the user cost increases, the growth in usage is reduced. Basic economics tells us that anything that is underpriced gets overused.
Moreover, slowing the growth in vehicle miles traveled is good for the environment.
Sales taxes, on the other hand, do not encourage efficient use of transportation infrastructure.
How can K-12 spending be protected while cutting income taxes?
The proposal would be implemented as follows:
- Increase gas taxes by 25 cents per gallon. This would generate $350 million in gas tax revenues, which is a little less than the amount of ongoing general fund dollars in the FY08 transportation budget.
- Shift $350 million in general fund dollars from transportation to higher education
- Shift $350 million in income tax dollars from higher education to K-12 education. (In FY08, higher education appropriations include $836.9 million in income tax dollars of which $760.4 million is for operations and $76.4 million is for capital).
- Cut income taxes by $350 million
A $350 million individual income tax cut would be a 14% reduction based on the GOPB FY2008 estimate of $2.545 billion in individual income revenues. The reduction could be achieved by a combination of the following:
- Lowering the 5.0% individual income tax rate
- Increasing the credit amounts
- Slowing the phase out of credits based on income
- Make credits refundable (helps low income)