Bob Bernick’s Notebook: Is it a Tax Hike or Tax Cut?

While most in the Utah media have been yelling “get ready for a gasoline tax hike,” new state House Speaker Greg Hughes says any adjustments in the state fuels tax will be neutral – no tax hike, no tax cut.

So, who’s right?

Well, if the Legislature acts in the upcoming 2015 general session as Hughes believes, they will both be right.

Here’s the deal: Hughes, R-Draper, tells UtahPolicy that the current 24.5-cent per gallon state gasoline tax will be changed.

The exact change is still being debated, but most likely there will be some kind of mix – a per-gallon tax and a new sales (Hughes calls it a “value added”) tax.

The per-gallon tax will in effect act as a floor. No matter how far down the price of gas falls, it will hit the per-gallon part of the tax and stop.

But, as the price of gasoline rises – and who doesn’t believe it will eventually go up from its current lows – then the value-added part of the tax will increase, thus keeping the gas somewhat in tune with the inflation costs of repair, rebuilding and new construction of roads and bridges.

Everyone agrees now that the current per-gallon state fuels tax is insufficient to keep pace with road needs in Utah – a geographically large state with growing transportation needs.

The 24.5-cent per gallon tax has not been raised since 1997. The buying power of the current tax has dropped through inflation to around 16-cents per gallon.

A new Utah Foundation study of tax burdens in Utah released Thursday shows that the current 22.5-cent per gallon tax equates to $3.75 on every $1,000 of personal income earned.

That ranks Utah’s gasoline tax burden 15th in the nation. While some may say that is too high, it’s about the same as fuels tax burdens among the geographically large states in the West.

When, in 1997, the Legislature raised the per-gallon gas tax by 5.5 cents, Utah’s gas tax burden jumped from 21st to 5th in the nation.

And after the 2015 Legislature ties at least part of the fuels tax to the cost of gasoline, no doubt Utah’s gas tax burden will increase, as well.

That assumes, of course, says Hughes, that oil prices rise from the current low of around $45 per barrel. (The price of oil was above $100 per barrel earlier in 2014.)

From a purely political point of view, the GOP-controlled Legislature WILL NOT adopt a straight gasoline tax hike in their 2015 session.

“Anything we do will be revenue neutral,” Hughes tells UtahPolicy.

Thus, when Republicans run for re-election in 2016 they can say they didn’t vote for a tax hike (even though the price of gasoline may be higher next year).

In fact, if a restructured gas tax is set towards the end of February or early March, as the session winds down, and the price of gasoline DROPS after that – as it could – Utahns will actually see a gas tax reduction in part of 2015.

Wouldn’t that be nice for GOP legislators?

But, of course, over time, as the price of gasoline rises, more fuel tax revenues would come into the state.

Hughes puts it like this: “If you bought a car 10 years ago for $15,000, you paid sales tax on that – probably around 7 percent.

“If you bought a car today for $30,000, and you still paid 7 percent sales tax on it, would you call that a tax increase? I don’t think so. The tax stayed the same; you just bought a more expensive car.

“That’s how we want (Utahns) to see our restructured gas tax.”

GOP Gov. Gary Herbert (who didn’t recommend any gasoline tax restructuring in his budget) and Republican lawmakers will likely eventually agree on restructuring the state gas tax.

What they likely won’t agree upon is Herbert’s desire to take around $95 million from the Transportation Fund and put it towards public education.

Herbert wants to remove a sales tax “earmark” on new growth in the state sales tax that has been going from the General Fund to the Transportation Fund.

Herbert originally vetoed that GF transfer, but his veto was overridden by his GOP colleagues several years ago.

The governor wants to infuse $500 million in one-time and ongoing tax revenues to public education in the 2015-2016 budget – which will be set in the upcoming Legislature.

By taking $95 million out of the Transportation Fund from those sales taxes and putting them back in the General Fund, that would free up $95 million in sales tax money going basically into higher education.

In turn, that would allow $95 million from the General Fund to flow into public education.

Hughes says GOP House members won’t want to readjust the gas tax in one year AND take $95 million out of the road fund.

Herbert promises that taking that road money out in 2015-2016 won’t stop or delay any planned road construction.

Republican lawmakers aren’t so sure. But even if that is true, clearly taking nearly $100 million out of the Transportation Fund will adversely affect road construction down the road (pun intended).

That sales tax earmark may be removed, perhaps in steps, in future years, says Hughes.

But Hughes says restructuring the gas tax is enough road funding changes for one Legislature.

Finally, there will be a big fight between cities and the Utah Transit Authority over taxes in this session.

GOP legislators are sympathetic to cities and counties need for more road money. Perhaps lawmakers will agree to increasing a local option sales tax for roads.

But in locales that also contain a transit district, there will be a fight over whether that transit district gets part of the city’s/county’s local option sales tax hike, or whether the transit district will get its own local option sales tax increase – which would be ON TOP of the city’s and county’s sales tax option.

Would citizens in Salt Lake City, for example, see a 25-cent sales tax hike on a $100 purchase for local roads (with the UTA getting a spilt of that quarter), or would citizens see a 50-cent sales tax hike, a city getting 25 cents and the UTA getting 25 cents?

Local governments with transit districts in their area say it would be unfair to make them share their new road tax money increase with their transit district.

While transit district officials say they need more money too, and they are taking drivers/vehicles off the city roads, thus diminishing road repair.

In other words, the fight over road funds and fuel taxes – one way or another – will be major in the upcoming Legislature.