John's Blog

High gas taxes, sales tax and the API

When we were home for our shower, we were talking about gas prices and my dad mentioned that NYS gax tax revenue had increased because of the increase in gas prices. I said I didn't see how as gas taxes are a fixed number of cents per gallon. A couple of days later, he sent me a story from CNN Money about a gas tax holiday that includes a table of the tax burden for a gallon of gas state by state. It turns out my dad was right and I was wrong. On top of the fixed 22.65 cents per gallon NY charges per gallon, they also charge a percentage sales tax. (How this compares to other items with a fixed excise tax? Do you pay sales tax on cigarettes?) Anyway, the CNN story says 8% while the FHWA website says it is 4% - Is the county getting the rest? I'd been against a gas tax rollback before, but knowing that NYS gets surplus revenue when prices spike, I could support a rollback on the 8% sales tax. Still, I'm leery of anything that mucks about with the supply-demand equation. I've only read about the 70s while my Dad lived through it, but I was under the impression that the Nixon/Carter attempts to lower prices only made things worse by causing shortages. But, as a temporary measure, I could support rolling back the variable sales tax.

That having been said, the timing of the CNN story is very very suspect. Last week a new poll found that "four out of five Americans -- including 76 percent of Republicans -- would support "a tax on the windfall profits of oil companies" if the resulting revenues went toward alternative energy research." I think the American Petroleum Institute is using anger over high prices, and an overall dislike of taxes, to try to deflect blame for high prices from the oil companies onto the government.

So those API numbers in the CNN story need to be taken with a very large grain of salt - the numbers may be correct but they are still a red herring. The fixed tax is $0.2265 NYS + $0.184 Fed. Then you add 8% on the wholesale plus federal total. So yes, the tax burden per gallon in NYS may be 62.9 cents right now but that only happens when the pretax price is high. If the pretax price is $1, the retail price is ~$1.50. Pretax prices need to hit $2.50 before the tax burden hits 62 cents. A 1.50 increase in pretax price causes a 12 cent increase in taxes. The taxes are a drop in the bucket comparatively. Personally, I'd fix the particular problem in NY by increasing the fixed portion to a level matching the fixed + variable tax for an average NYS gallon in June 2005 and dropping the variable portion altogether. That way, you've taken wholesale price out of the system entirely. And then I'd tax oil company profits federally to fund alternative energy programs.

But if the API manages to shift the debate from windfall profits to taxes, they may successfully dodge a windfall tax in spite of an overwhelming mandate from the both the right and the left. And the likelihood an administration composed of Texas oilmen acting on this seems rather low.

---