Fuzzy Math: The Gas Tax Debate’s Bad Numbers

WHY ARE PROPONENTS OF A GAS TAX HIKE RELYING ON SUCH BAD NUMBERS?

The debate over roads and road funding, especially as it’s taken place inside the State House over the last two years, has been riddled with bogus statistics and implausible projections. Here are three of the worst examples of this trend:


Tax cut savings based on unrealistic projections

Another selling point for supporters of a new amendment to the transportation bill is the tax savings they claim residents will save from the grab bag of tax policies and reforms they want to include in the bill. No doubt some residents will save money from these reforms but the exact amount of projected savings relies on questionable assumptions about growth.

In order to come up with the hundreds of millions in projected savings for taxpayers, reports on the fiscal impact of the new amendment assume that total taxable income will grow by 4.9 percent each year until 2019.

But consider: from 2011 to 2014, the last three year period for which data is available, per capita personal income in South Carolina grew by 2.7 percent, real median household income grew by 2.2 percent, and real total South Carolina GDP grew by 1.3 percent.

But even if historical trends seemed more favorable to these rosy assumptions, the projections are largely guesswork. One need only look at multi-year projections in 2007 to confirm that.

The truth: Any tax “swap” will result in higher taxes for many, perhaps most, taxpayers. The rosy analysis underlying the current proposal strongly suggests this one will end up being a straight-up hike on most taxpayer.


One third of the gas tax is paid by out-of-state drivers

Proponents of a gas tax increase have repeatedly claimed that one third of South Carolina’s gas tax revenues come from out-of-state drivers. The thinking is that one third of any tax increase therefore would not fall on South Carolinians. When a member of the Senate Finance Committee recently asked a transportation official for the source, the answer was that the number had been generated by a former Department of Transportation (DOT) employee.

It turned out the figure had been deduced using data from the SCDMV and the Federal Highway Department on the number of registered vehicles in South Carolina, the average MPG per vehicle type, and the miles per vehicle type.

How exactly would the federal highway department or any other entity know just how much South Carolinians are driving their cars based on the vehicle type? Does every sedan owner have the same length of commute and amount of business travel? It’s a wild guess as to how much a national statistical abstract like average miles per vehicle type applies to South Carolina drivers, and its use to justify a disputed South Carolina-specific claim is doubtful at best.

Of course, the out-of-state-drivers argument completely ignores what economists call “elasticity”: If you raise the price of a product, people will find ways to avoid buying the product or purchase a cheaper substitute. No doubt many people living near the South Carolina border in Georgia and North Carolina choose to buy gas in South Carolina, when they can, since the tax and thus the overall price is lower. But if the price is raised (via taxation) the incentive to cross the border for gas will disappear. For example, if state government were to implement the 12 cent gas tax increase currently being proposed, South Carolina’s gas tax would go from being 14.25 cents cheaper than Georgia’s gas tax to only 2.25 cents cheaper. Many Georgia residents near our border would therefore stop buying gas in South Carolina.

It’s worth noting, too, that the whole debate over how much of the total gas tax revenues comes from out of state drivers is only relevant from the perspective of the government. The total amount of South Carolina gas tax paid by out-of-state drivers won’t have any effect on the cents-per-gallon paid by South Carolinians every time they fill up.

The truth: No one knows how many drivers buying gas in South Carolina are from other states, and even if we did know, it’s a terrible argument for raising any tax.


Projected gas tax revenues

The reports on the estimated revenues to be raised by an increase in the gas tax don’t make their assumptions explicit. In any case, though, they suffer from the same issues that surround other projections. Revenue from the gas tax is not a reliable source of revenue. It’s impossible to predict the fuel efficiency of the average car in ten years, the price of gasoline over the same time period, or whether the federal government increase the federal gas tax (this last is a likely scenario). All of these factors could reduce consumer demand for gasoline and so send gas tax revenues plummeting.”

The truth: Projections about how much a gas tax increase would bring in are grossly unreliable.


Bottom line

Just about the only reliable observation in this debate is this: An increase in the gas tax will mean South Carolina drivers would pay more at the pump. And without real reform to the state’s transportation authorities, a gas tax increase won’t fix our roads.

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