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Prices at pump soar again, but don’t blame gas taxes

As we fill up for the Memorial Day weekend, should we blame this unhappy state of affairs on Minnesota’s rising gas tax? Sure, if it makes you feel better. Read more… By Dave Beal 

Egads! Gas just hit another new high in the Twin Cities, topping $3.85 at the pump.

As we fill up for the Memorial Day weekend, should we blame this unhappy state of affairs on Minnesota’s rising gas tax? Sure, if it makes you feel better.

But that would be like talking about pennies instead of dollars. And like rooting for rickety, deteriorating roads likely to cut short the life of your car.

For me, the saga of Minnesota’s gas tax morphed into perspective on Wednesday, when I sat in on a Minnesota Chamber of Commerce briefing that drew about 75 of its members The chamber called the meeting to review the work of the 2008 Legislature.

Three months ago, the chamber helped lead a coalition that finally persuaded legislators to boost the state’s gasoline tax.

Has the Minnesota chamber, the state’s largest business lobby with 2,400 members employing roughly half a million workers, been confronted with a backlash from tax-weary businesses? Is this organization, reflexively opposed to higher taxes, experiencing buyer’s remorse for helping the alliance raise this tax over the objections of Gov. Tim Pawlenty?

There was absolutely no sign of that at the chamber’s briefing.

Shortly after legislators OK’d the gas tax increase, news surfaced that the chamber had lost members because it backed the increase. But then, and now, chamber officials said their stance led to the loss of only a handful of members.

“It was not significant at all,” says Jim Pumarlo, communications director for the chamber. “Our numbers said the cost of inaction was far greater than the cost of action.”

Erin Sexton, director of health care and transportation policy for the chamber, told the audience that only a tiny fraction of the recent price surge at the pump results from the state’s gas tax increase.

“We are going to see a lot of good things happen” with the money generated by the gas tax boost, she added.

Former chamber director and longtime member Joe Weis, chairman emeritus at Weis Builders in Minneapolis, typically peppers the chamber’s lobbyists with questions at such briefings. He did so again on Wednesday, and came away pleased with what he heard.

Most favorable results ever?

Weis called the session the most favorable chamber post-legislative briefing he’s ever attended.

More favorable even than the briefings that followed the business lobbies’ signature triumph in winning the overhaul of Minnesota’s workers compensation system in 1995? Or when these lobbies celebrated the cuts in personal income and business property taxes of 1999-2002?

Maybe so, considering the dire state budget situation that legislators and the governor faced heading into this year’s session. Tom Hesse, vice president of government affairs for the chamber, said members’ expectations were low, forcing the chamber to focus on defending the status quo by warding off many proposals to increase taxes or regulation.

“They put out a lot of fires,” Weis added. A chamber handout (PDF) lists a dozen defeated tax increases or fund transfers that protected or nourished its members’ bottom lines. The handout notes that “the state budget shortfall was resolved with no increases in general fund taxes.”

But it was the transportation package, highlighted by the gas tax increase, that made the biggest splash this session. In a historic action, legislators overrode Gov. Tim Pawlenty’s veto to enact a gas tax increase of 2 cents a gallon, effective in April. Another 3 cents will be tacked on in October. An additional 3.5 cents will be phased in over several years, for a total increase of  8.5 cents a gallon.

The legislation ended years of gridlock over state transportation policies.

The gas tax is a vital source of state funding to keep Minnesota’s sprawling system of roads and bridges up to date.

Chamber officials have become increasingly concerned about mounting congestion, fraying roads and bridges and a rising backlog of highway maintenance projects. Many members say these problems are making it steadily more difficult to transport goods efficiently and for employees to get to and from work.

Adjusting for inflation, gas tax has plunged
In 1988, Minnesota’s gas tax stood at 20 cents a gallon. Gasoline prices averaged 96.3 cents a gallon at the pump that year, according to the American Petroleum Institute. Since then, the cost of materials and labor for roadwork has surged. But until last month, the state’s gas tax remained smack dab where it was in 1988.

Here’s one way to look at this: Today, the pump price is four times what it was in 1988. Even after October, when the rest of this year’s 5-cent increase in the state gas tax clicks in, the state gasoline tax of 25 cents a gallon will account for just 6.5 percent of the current pump price. That’s down from almost 21 percent in 1988.

All of this has not deterred anti-tax advocates from pillorying legislators who voted for Minnesota’s gas tax increase. And at the federal level, presidential candidates Hillary Rodham Clinton and John McCain have been pitching a “tax holiday” from the U.S. gas tax this summer. That tax, 18 cents a gallon, finances federal highway maintenance and improvements.

Economists call such stances pandering and warn that a gas tax holiday would do little or nothing to lower overall gasoline prices. In fact, many economists — including former Federal Reserve Chairman Alan Greenspan, no friend of tax increases — back raising the federal gas tax as a way to encourage conservation and reduce our dependence on foreign oil.

Canada taxes gasoline at more than twice the rate U.S. motorists pay, and in Western Europe, drivers in some countries pay close to 10 times as much in gas taxes as we do in the Unitede States.

The chamber began supporting a modest increase in Minnesota’s gasoline tax about five years ago. This year, it worked hard to persuade a handful of Republican lawmakers to break from their leadership and support large DFL majorities in both houses of the Legislature to override the governor’s veto.

But many credit the collapse of the I-35W bridge last summer for providing the spark that finally led to the state’s first gas tax increase in two decades.

Whatever the case, we don’t like paying more at the pump. But it’s a free country, so go ahead and blame the gas tax increase if it’ll make you feel better.