It’s time for lasting, transformative changes

Gas prices have gone back up, and gas taxes are going back down.

With inflation proving stubbornly persistent, elected officials are looking for ways to respond. President Joe Biden continues to declare victory, noting that prices aren’t rising as sharply as they were a year ago. As we’ve explained before, that just means the earlier pain remains baked in for Americans whose wages haven’t kept up with the price of groceries or rent. Or gasoline.

Speaking of gasoline, Gov. Brian Kemp reinstated a suspension of the state’s motor fuel tax. The average price of regular unleaded fuel across Georgia at the end of this past week was about $3.45, according to AAA. That’s about 18 cents per gallon less than a month earlier, but it’s about 23 cents per gallon more than a year ago, when the gas tax was last suspended.

Inflation, taxes and gasoline prices are going to remain intertwined for some time to come. Understanding why is key to understanding what may come next from Georgia’s policymakers.

Inflation has made state tax revenues boom. Higher prices mean higher sales tax revenues. Higher wages – even if they still trail prices – mean higher income tax revenues. 

The rate of inflation has fallen from the 40-year high of a year ago. Consequently, state revenues have leveled off. But they’re still atypically high.

Here’s an illustration: In the five years leading up to 2020, state revenues rose by an average of about 6% per year. Had they remained on that trajectory after 2020, they’d have been about $8 billion lower in 2022 and 2023 than they actually were.

You can mostly credit – or blame – inflation for that.

The difference would have been closer to $10 billion, if not for an earlier suspension of the gas tax. Motorists saved an estimated $1.7 billion while the state withheld the levy. Road construction needs, which are funded by the gas tax, didn’t disappear in the meantime. But excess revenues from other sources allowed the state to backfill its needs for transportation infrastructure.

Infrastructure is one of the items Democrats say should be funded more generously due to the inflated revenues. They accuse Kemp of building unnecessarily large surpluses by being too conservative with his revenue forecasts. (In Georgia, the governor sets the “revenue estimate,” which caps the amount of money the General Assembly may appropriate.)

“Why do we keep getting revenue underestimated every single year?” said Georgia House Minority Leader James Beverly, D-Macon, as reported by Georgia Public Broadcasting. “And now, we have a surplus that is tremendous.”
He continued: “These monies should be used for Georgians whether it’s for infrastructure, health care, emerging markets — not holding on to it like it’s a personal bank account.”

As his comments make clear, there will be increased pressure on Kemp to adjust the revenue estimate upward for fiscal 2025 – and perhaps not only from Democrats. The governor’s office projected a multibillion-dollar decline in fiscal 2023, which ended June 30, but instead the state enjoyed a very slight increase. The estimate for the current year, fiscal 2024, is set at almost $2.4 billion below last year’s record intake.

What goes up must come down. Right? 

Maybe. But to the extent these higher figures represent a new normal, the political high ground may go to those who offer the most compelling vision for using them. Beverly has staked out his party’s vision: higher spending.

Kemp has been content with temporary measures such as suspending the gas tax or issuing tax rebates. Both are nice “found money” for taxpayers, but that’s no basis for making durable economic decisions. What if the governor threw his support behind longer-lasting reforms, such as permanent cuts to the income-tax rate?

Permanent changes based on temporary circumstances can be dangerous. But the questions about just how temporary these circumstances are will only grow louder. It may be time for a bolder approach – and a shot at some lasting, transformative changes.

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