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Fuel Tax A Good First Step, But More Should Be Done

Posted by michaelm at Jan 14, 2013 09:35 PM |
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The new excise tax on gas and diesel fuel proposed by Governor Gregoire is a good first step toward  generating the resources needed to make investments that help create jobs and grow our economy. But it should be only part of a larger effort to forge a stronger revenue system that can foster a healthy, well-educated workforce for Washington state’s future.

The tax on wholesale fuel would start out at 1.85 percent and generate more than $360 million in additional resources for the 2013-15 budget cycle. Revenue would gradually climb to over $900 million by the 2017-19 budget when the tax reaches 4.62 percent.  The money would be used to cover the cost of transportation for school kids, freeing up resources to reduce class sizes, fund all-day kindergarten and make other school improvements.

Given the structure of fuel market, it is unclear whether any of the tax would be passed along to consumers in the form of higher prices at the pump. Even if some of the tax is shifted to consumers, it’s important to note that it would be spread out between in-state and out-of-state consumers, meaning Washingtonians would pay only a portion of the tax. In 2011, nearly half of the fuel refined in Washington state was sold to out-of-state consumers.

Fuel by destination

However, as fuel consumption declines in Washington state -- and the Northwest  overall – due to better fuel efficiency and other trends, the long-term adequacy of such a tax  is questionable. Gas consumption in Washington state peaked in the early 2000s and has been  steadily declining ever since.

Nominal Gas Use

Over time, revenue from fuel taxes alone will not be enough to make the investments we rely on to create a vibrant, prosperous state.  Broad revenue reform is critical to ensure economic growth and opportunity for more Washington families.

Putting expiration dates on tax breaks so their costs and usefulness can be regularly reviewed, creating an excise tax on capital gains, and modernizing the sales tax to include a wider range of consumer services are additional sound steps we should  take to put Washington state on a better path and move families toward shared economic prosperity.

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