There’s an old saying that a picture is worth 1,000 words. And, perhaps that’s what State Rep. Michael Caldwell thought as he prepared for the weekly Saturday morning coffee meeting with constituents he holds in downtown Woodstock. House Bill 170, the Transportation Funding Act, had dropped on Thursday afternoon, and he wanted to be able to explain it to those in attendance.
So, he took to the whiteboard, and drew a comparison showing how gasoline is currently taxed, and how it would be taxed should the TFA pass, going over the details and reasoning for each part.
While the whiteboard in the picture is a bit tough to read, Rep. Caldwell sent us the draft he prepared for the event, which you can see below.
Let me call attention to a few points. The $3.39 figure cited at the top of the chart is the average price of gasoline in Georgia over the last four years, inclusive of taxes. That figure, which was cited in the leadership press conference and in talking points, is the basis for the other numbers used in the left-hand side of the chart. The 18.4 cent per gallon federal excise tax, which is not under state control, remains constant.
In the current system, there is a 7.5 cent state excise tax and a 4% state sales tax, which amounts to 13.6 cents when the gas price is $3.39 per gallon. There’s also a local sales tax component, which can include LOST/HOST, SPLOST and ESPLOST levies. (MARTA and TSPLOST taxes in the counties that have them will remain as they are if the bill passes, so they aren’t mentioned here.) Since not every county has the same taxes, however, Caldwell had to deduce what the average percentage rate was used for local taxes, and came up with 2.4%. That’s because 29.2 – 7.5 – 13.6 = 8.1, and 0.81 is 2.4% of 3.39.
Those three items, excise tax, state sales tax and local sales tax total to 29.2 cents per gallon. Adding 29.2 cents to the 18.4 cent federal excise tax gets us to 47.6 cents tax per gallon drivers paid, on average, over the last four years. Under the TFA, the existing state excise tax, state sales tax and local sales taxes are converted to a 29.2 cent per gallon excise tax, and that conversion in how gasoline is taxed allows the state to claim it gets $900 million per year for transportation that it didn’t have before.
According to Rep. Caldwell, here’s how that $900 million breaks down:
$618 million from local sales taxes that become excise taxes
$206 million from the ‘fourth penny’ of the state sales tax that previously went to the general fund
$ 60 million from trucks purchasing fuel in Georgia rather than other states
$ 15 million from a new tax charged to owners of alternatively fueled vehicles
Add those numbers up, and you get $899 million. Close enough to $900 million, considering rounding. Add to that the state’s intention to use $100 million in bonding capacity to benefit transportation, and you get the $1 billion number that’s been widely cited. And if those numbers look a little different that what has been cited in the media (including here on Peach Pundit), Caldwell says that’s because before Wednesday, no one knew the state would use $3.39 as the average price of gas; many were using $3.00, which would mean less revenue and lower totals.
Rep. Caldwell’s analysis of the effects of moving from the current system to one based on excise taxes is based on the assumption that the switch is revenue neutral, and therefore, not a tax increase. All of the figures he uses are publicly known except for the effective percentage rate used to calculate the local sales tax, which he solved for using basic algebra. In order to be truly revenue neutral, that rate would have to be 2.4%.
While most Georgia counties have a 3% local sales tax–again ignoring MARTA and TSPLOST taxes–there are eight counties that have only 2% local taxes: Burke, Cherokee, Cobb, Fayette, Glynn, Greene, Gwinnett and Whitfield. Several are in metro Atlanta, and those that are generate a lot of sales tax collections. Enough to drag the overall percentage down to 2.4% from 3%? The $61.6 million in sales tax collected in these eight counties accounts for 12% of the $515.8 million collected by all counties.