P-I Editorial Board: Raise the Federal Gas Tax

Yesterday's lead editorial in the Seattle Post-Intelligencer makes the case for a higher federal gas tax, arguing that a hike of up 50 cents per gallon could be necessary. The rationale?

A federal gas tax increase of 50 cents or more would assure that there will be a market for new technologies.

Unpacked, this means that paying 50 cents a more for regular gas will make people a little more inclined to investigate alternatives. Those alternatives may still be more expensive than conventional gasoline-powered cars, but they'll be a bit less expensive.

And this seems obviously true. There are three caveats for Washington state consumers, though:
1) Inevitably, a gas tax will hit low-income families hardest. In the state that already has the most regressive tax system in the nation, this is no small concern.
2) From a different fairness perspective: as a nation, we've spent the entire Interstate Age encouraging people to live a spread-out lifestyle focused on the automobile. Cheap gas and free highways have made suburbanization happen. Suddenly hiking the gas tax amounts to pulling the rug out from under folks for who living in the suburbs is currently affordable. Nothing less forever, and people have to have known this, but it's still worth remembering that some low-income people would have to uproot because of such a change.
3) All you have to do is read the headlines this week to know that people are quite sensitive about gas prices. This means there's probably a cap on how high gas taxes can go before people start saying no. And if the feds impose a new 50 cent tax, that will make it much harder for Washington lawmakers to find political support for an additional state gas tax. In this light, Washington policymakers should be keeping an eye on federal activity on this front so they can stay in front of the federal trend.

You don't have to have a pessimistic view of human nature to believe that the only way humans are gonna reduce their reliance on fossil fuels is if you just beat them over the head with a (metaphorical) stick of this kind. It's simply too easy, even at $4 a gallon, for most people to maintain their car-centric lifestyle. So the P-I is probably right in their call for a higher gas tax.

But Washington policymakers should start thinking fast about whether such a move would paint the state's already-distorted fiscal structure further into a corner.

Washington Has a Rainy Day Fund

The budget signed into law by Washington Governor Chris Gregoire this week includes a provision creating a rainy day fund. The new law requires lawmakers to deposit 1 percent of general fund revenues into a special rainy-day account each year. The money's not in a proverbial lockbox-- lawmakers can still use the money any time they want to as long as 60 percent of the legislature agrees, and when the economy goes south a simple majority is all they need to do so--but the creation of a regular source of inflow to this fund creates an important symbol for lawmakers.

To find out more about rainy day funds, check out ITEP's policy brief here.

Who Pays the B&O Tax?

With more and more states discussing, or even enacting, gross receipts taxes, there's a growing focus on who really ends up paying this tax. Most people agree that Washington's Business and Occupation (B&O) tax generally gets passed on to consumers in the form of higher retail sales prices. But a new state court ruling reminds Washingtonians that it doesn't always have to be this way.

The Court's ruling basically reaffirms what people have always said about the B&O tax, which is that it's absolutely OK for businesses to pass on the whole tax to consumers by increasing their retail prices, but also affirms that it is absolutely not OK for businesses to treat the B&O tax like a sales tax and actually tack it on to the final sales price of, say, a car.

This is exactly what Appleway Chevrolet tried to do to Herbert Nelson when he bought a used Volkswagen Cabriolet. After Appleway and Nelson agreed on a sales price, Appleway then added the B&O tax on top of it-- effectively making it a sales tax. The amount in question is not large (the B&O tax the dealership added was about $70), but the principle is clear. The $70 B&O tax the dealership paid is a cost of doing business. They could have increased the asking price of the car by $70 to effectively pass it on to Nelson, but once they set the price they were no longer able to tack it on.

The exception in this case only serves to prove the rule: despite the legal fact that businesses pay the Washington gross receipts tax, Washington consumers effectively pay the tax every time they make a purchase in Washington State. It's an invisible sales tax.