As Connecticut’s political and business leaders renew their call for dramatic action to rebuild and enhance the state’s economic and job situation, state law continues to promote an exponential growth in gas prices – a situation that disproportionately hurts middle class families while increasing the cost of energy – a major cost factor limiting business and job growth in the state.
Connecticut’s growth in gas prices are a direct result of two factors – the manipulation of supply and demand by big oil and the oil-producing nations and the impact of Connecticut’s ill-conceived gas tax policies.
As we know, the net result is that consumers are standing at the pump watching in disbelief as their vehicles swallow up more and more of their limited incomes.
What they may not appreciate is that Connecticut gasoline tax policy is actually designed to promote an increase in gas prices.
Perhaps even more insulting, and even less understood is that the “extra” money raised from Connecticut’s gasoline taxes do not go to support transportation or mass transit but are instead dumped into the state’s General Fund where they are used to cover other government expenditures.
How does the Connecticut Tax System Work?
In addition to the basic 25 cents per gallon state gasoline tax that is posted at the gas pumps, state law levies a gross receipts tax on the wholesale price of gasoline sold in Connecticut. This tax increases the cost of gasoline by about 7.5% or, at today’s prices, about 19 cents per gallon. As wholesale prices go up, the wholesale tax increases the retail price of gasoline exponentially. As a result, Connecticut consumers traditionally pay some of the highest gas prices in the country.
While gas taxes are not classically “regressive” in that the burden does not automatically fall heaviest on the poor (since many urban poor do not have cars or drive greater distances to get to work), the gas tax does fall disproportionately on the working and middle class, especially in a state like Connecticut with its limited mass transit system.
According to the US Energy Information Agency, the financial burden of gasoline expenditures falls heaviest on those making between $25,000 and $75,000 and those households with children.
With all of that, the real “Wait, What? Moment” comes back to the fact that while the state’s 25 cents per gallon gas tax is dedicated to the state’s Transportation Fund, a majority of the funds raised by the 2nd gas tax (the ever-expanding gross receipts tax) does not go to help pay for transportation related expenses.
The history dates back five years when Governor Rell proposed an expanded transportation initiative. Rell called for increasing the gas tax by 1 cent per year for a number of years to pay for the new program. However, rather than add to the very public (and arguably unpopular gas tax), the Democrats decided to dramatically increase the gross receipts tax on gasoline. This strategy not only provided a revenue stream for the Transportation Initiative but generated “excess” revenues that could be diverted to other expenses.
Since Fiscal Year 2006, Connecticut’s expanded gross receipts tax has brought in more than $1.7 billion dollars but only about $700 million or so has gone to help renew Connecticut’s transportation infrastructure or help support Connecticut’s mass transit programs. The rest – about a billion dollars – was used to fund non-transportation programs.
During last year’s gubernatorial campaign Dan Malloy made it clear that while he supports gasoline taxes he believes the funds should be used to improve Connecticut’s out-dated transportation programs. It will be interesting to see whether the Malloy Administration follows through on those comments and re-directs all of Connecticut’s gasoline related revenues so that they actually support transportation programs. It would actually be a relatively easy task. The new Administration could actually shift all transportation and transportation related public safety costs to the state’s Transportation Fund and then apply all gasoline revenue to those activities. While it wouldn’t change the overall bottom line it would ensure that consumers knew that they gasoline related tax dollars were actually going for their intended purpose.
Finally, it would be very refreshing if upcoming Malloy budget made middle-income families a priority by dropping the complex gross receipts tax on gasoline and instead bit the bullet and went with a simple expanded flat rate gasoline tax that raised the necessary revenues. By taking such an action Malloy could ensure that programs were properly funded while ending the state’s role as a factor in promoting the further increase in gas prices.