April 10, 2017

High Gas Taxes Drive Out Growth

California’s latest taxpayer siphon has lessons for Tennessee, which is considering making the same mistake.

At some point, the West Coast will experience an epiphany. Or will it? In one blue state, yet another tax increase — not to mention an unprecedented one — is taking root. And considering we’re talking about California here, that’s saying a lot. Investor’s Business Daily reports, “The state’s already highest-in-the-nation gasoline tax will rise 19.5 cents a gallon, while diesel will go up 20 cents. Meanwhile, car owners will also see their registration fees rise from $25 to $175, depending on vehicle value. Electric car owners get hit with a special $100 tax, since they don’t use gasoline. All told, the new taxes are expected to collect $5.2 billion a year.”

There’s simply no excuse for this. California’s newest $5 billion taxpayer siphon could easily have been negated had the state tried to retain the one million residents who have packed up and left since 2004, not to mention the 10,000 businesses that have bolted or restricted commerce since 2008. That exodus hits the economy hard, yet over the last seven years state spending is up 53% under the misleadership of Gov. Jerry Brown. And as IBD notes, the problem isn’t being handled. Billions of dollars in previous tax increases that should be going toward taming the infrastructure bugaboo are going elsewhere instead. This one appears to be a ruse as well. And Reason’s Steven Greenhut pinpoints why: “Californians should see it as a pension tax, given the extra money plugs a hole caused by growing retirement payments to public employees.”

There may not be much hope for California, which continues to disappoint with its doubling down on failed policies. But it should be a wake-up call for red states like Tennessee. Despite enjoying a conservative supermajority in the legislature, Republican Gov. Bill Haslam, under the guise of infrastructure repairs, surprisingly wants to hike his state’s gas tax even though Tennessee has a multi-billion dollar budget surplus. (You can read over the details here.) Unlike California, Haslam’s proposal may be paved with good intentions. But that doesn’t mean he’s not risking a road hazard. Tennessee (home to our humble shop) is ranked among the nation’s most business-friendly states. And that happened because conservatives created a low-tax environment. It would be a real shame to threaten reversing this trend.

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