During the transportation funding debate, the Governor suggested that the tax increases in that bill should be offset by a reduction in other taxes. And now he’s put forward such an option in his budget proposal: reducing the state sales tax by 1/8th of a percent (or 0.125%).
Here are two reasons why we think the legislature should reject this idea.
First, the funding raised in the transportation bill can only be used for transportation. The state sales tax is a general funding source – it can be used for many other priorities: K-12 education, higher education, health care, child care, etc. There’s no reason why increased funding for transportation raised in the transportation bill requires that we cut other critical state needs. That is the whole point of raising additional revenues.
Second, the gas tax is one of the state’s most regressive taxes – it takes a bigger share of the budget from low-income people than those with higher incomes. The sales tax is regressive as well, but less so. (There is a chart measuring different taxes in terms of their regressivity in our issue brief on tax incidence.) Reducing the sales tax but increasing the gas tax just leaves the overall tax system more regressive.
We’ve been arguing that the state needs to raise more revenues to fund our priorities, and to raise them fairly. Cutting the sales tax because the gas tax has been raised fails on both counts.