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Terry T. Campo is a partner in the Washington, DC-based law firm, Farrell & Campo, specializing in energy, environmental and transportation regulation. A native of Springfield, IL, Campo was a Republican candidate for Congress in the 20th District in IL in 1994 and served as National Chairman of the Young Republicans from 1989 to 1991.Terry sits on the Board of Directors for the Illinois Policy Institute
(Springfield, Ill.) Illinoisans, like the rest of their fellow citizens, increasingly find their economic circumstances beyond their control. Beset by rising prices for healthcare, housing, property taxes and state excise taxes, every day they face providing for their families with less net disposable income. But nowhere does this reality come to their attention like the weekly trip to the gas pump.
This spring and summer, Illinoisans will pay at least 25% more for gasoline than they did last year—giving them a true case of the summertime blues. But unlike the refrain from Eddie Cochran’s 1958 song, there is a cure for the summertime blues: it’s called a gas tax holiday.
Like last summer, Illinois ’s gasoline prices will be some of the highest in the nation at least partially as a result of compliance with the U.S. EPA’s idea of Clean Air blends. On top of this is the fact that Illinois ’ gas taxes are among the highest in the nation. Once again, politicians who have consistently voted for both higher taxes, greater regulation, and against increased oil domestic production will likely issue press releases calling on President Bush to release oil from the Strategic Petroleum Reserve (SPR) to lower prices, which obscures the origin of the crises and allows them to continue serving themselves rather than the taxpayers.
At the same time that Illinois families are scrimping to afford these higher prices, Illinois politicians are saying the state is cash strapped and that we need to raise the state’s income and cigarette taxes, while the Governor proposes massive increases in the state’s Medicaid program. In short, our politicians are saying, “times are tough, let’s spend more!” The Governor’s most recent proposal is to extend the state FamilyCare program’s coverage from 133% of the federal poverty line to 185%. This is supposedly in service of the working-poor families, to help them make ends meet. It would be far more helpful to struggling families to lower their taxes—including one of the most regressive taxes they pay: the gas tax.
Outside the City of Chicago , all of those same working-poor families have to buy gasoline to get to work—at least once a week and in rural areas much more; for both those who live within Chicago and the rest of the state, everything they buy at the grocery store is delivered by truck. As regressive as cigarette taxes are—people can quit smoking in response to the Governor’s tax increase, but they will still need to buy gasoline and products dependent on gasoline no matter how high the taxes. That is why Illinois ’ politicians raised gasoline taxes in 1998 as world oil prices were falling—for them it proved a windfall: a tax increase people would not notice because the price at the pump was falling.
Lowering the taxes Illinoisans pay at the pump would pump more money into the pockets of Illinois ’ families—allowing them to buy more medicine or food on their own. While the governor surely thinks his unprecedented expansion in health care spending is a response to the needs of the people, in fact it is the burden of government on the backs of Illinois businesses and taxpayers that contributes to making these government services necessary.
Medicaid, of course, is one of the most abused programs in the US and is already driving many states to the edge of bankruptcy. But expanding it does allow the state to expand its tentacles into ever more reaches of society—where the Governor can repay his campaign donors. Under the Governor’s proposal, Illinois taxpayers will fork-over an additional $728 Million next year to fund Medicaid’s expansion. But if instead the State suspended the gas tax for the three summer driving months (May, June and July), Illinois taxpayers would get the equivalent of $377 Million more in disposable income.
Opponents of suspending the gas tax will point-out that the revenue it raises is used to fund road maintenance—and that summertime is when Illinois does most of this work. While both of those statements are true they are also diversions. Set aside for moment that this relies on the false picture of IDOT clerks deciding what roads to fix on Wednesday based on Monday’s gas tax revenue. Nothing in a gas tax holiday would require the state to suspend or cut-back road maintenance; it could do the same maintenance by simply not spending more money on the other government programs the Governor wants.
Curiously, if gas tax revenue is used just to maintain the roads, why does the tax per-gallon have to be so much more in Illinois than neighboring states? People buying gasoline in Illinois pay 30 Cents per gallon to the state—nearly double the 18 Cents they pay in Indiana and 17 Cents paid in Missouri . Doesn’t an Illinois driver impose the same wear-and-tear on I-55 when he drives from Collinsville to Springfield Illinois as a Missouri driver does when he drives from St. Louis to Springfield , Missouri ? Yes, Illinois has both more roads and more drivers than its neighbors, but that does not impose greater costs per-mile driven. The real reason for the higher taxes, of course, is that Illinois has far more government graft and therefore pays more for road maintenance than do other states. In fact, Illinois’ hides an 11 cent per gallon tax that has nothing to do with rode maintenance—8 cents for “environmental impact” of your driving your car and 3 cents for cleaning-up abandoned underground storage tanks—all this on top of the 18.4 cents the Federal Government gets. That’s right, combined federal and state taxes add 58.4 cents per gallon! But it gets even better— Illinois is one of only seven states that also imposes its retail sales tax on gasoline purchases—so on top of excise taxes for the feds and state, and environmental taxes, they charge a sales tax.
This sales tax is particularly insidious, because it means that the State of Illinois actually profits from rising oil and gas prices—at the same time these price increases takes money out of your pocket, the State considers it a reason to take more.
Instead of suspending road maintenance, the state could use less than half the money the Governor wants to spend on expanding Medicaid to continue road maintenance at its planned pace. In other words—the State could chose between competing priorities the same way Illinois families have to do.
This summer hundreds of thousands of Illinois families will decide not to take a driving vacation to a state park, visit their grandparents, or go out to dinner because they have to pay so much more for gas than they did last year. Why does the Governor think he should not have to make that choice?
As high as gasoline prices are right now…..just wait. Crude oil prices continue to hover above $55 a barrel—breaking past $58 in the first days of April. This time last year, we were talking $42. The largest oil futures derivatives investor just advised its clients that we are heading for a “super-spike” that will drive oil prices to between $80 and $105 a barrel—double today’s price. We are entering an era of higher-highs in crude oil prices, and higher-lows on the spot market. Futures contracts for June deliveries on unleaded regular reached a new high on April 1, of $1.71 per gallon—that’s what the ‘middle-men’ suppliers of gasoline pay before they transport it and sell to your gas station. One analyst projects $2.25 gasoline-contracts before the end of summer based on weather forecasts of seven hurricanes in the Gulf of Mexico . Everything you buy is either made from petroleum and/or delivered to the store in a truck that uses it. The price of everything you buy is about to go up again. Suspending the gas tax could cut those delivery costs and soften the impact of higher crude oil prices on all consumer purchases.
Moreover, suspending the gas tax can stimulate consumer spending within Illinois —preserving private sector jobs. Nationwide, gas station owners report declining sales in the sundry items that people usually buy when they fill-up. In the highly-competitive market where people shift stations over one cent per gallon, these sundries are critical to the profit of every small businessman who owns a gas station. Some have begun laying-off employees—very often the working poor seeking a leg-up. As if they weren’t already hurt by our state’s high fuel taxes—even Wal-Mart is seeing their sales decline as their customers have to cut back because of high gas prices.
Every Illinois driver living near the Indiana and Missouri border routinely crosses-over to buy gas—where lower taxes make a full-tank at least couple of dollars less. If you fill-up a 20 Gallon tank, you save $2.40 in Missouri —if you are a family with an SUV, it’s a $4 or $5 saving. If you’re a smoker, you get double the tax break because these states also have more reasonable cigarette taxes! A Gas Tax Holiday this summer would keep these consumers buying from Illinois stations. Moreover, the publicity campaign that our Governor would likely wage would be a boom to tourism from nearby states.
Why not turn Chicago into a summertime tourism Mecca for folks in Indiana , Michigan and Wisconsin . Hotels, restaurants and tourist attractions would all gain. The increased demand would generate entry-level employment benefiting the working-poor. The income taxes they would then pay would help fund other state needs.
Illinois state parks like Starved Rock could become more affordable for family trips. Indeed, with the impending opening of the Abraham Lincoln Presidential Library that is hoped will promote tourism in Springfield, let’s start a PR campaign that promise the folks of Iowa, Kentucky and Missouri that our gasoline taxes are the same as they were in Lincoln’s time—Zero! Picture Abe at the gas pump inviting them to come visit!
It would cost the State of Illinois approximately $377 million to suspend the Motor Fuel Tax for three months, specifically May, June, and July. What follows are suggested ways to cut about $377 from the Gov’s 2006 budget in order to “pay for” this Gas Tax Holiday. These are the ‘trade-offs’ that the Governor could make … the same way Illinois families will have to this year.
Take the entire cost out of new Medicaid spending: The Governor’s Fiscal Year 2006 budget includes an 11% ($742 million) increase in spending for Public Aid (DHFS). His goal is to expand Medicaid to fund health care for families up to 185% of the federal poverty line (we already fund up to 133%). This is obviously a massive expansion in a time when budgetary constraint is needed. Cutting this new spending in half would allow for the Gas Tax Holiday and still leave $365 million for new spending on Public Aid—about a 5% increase to meet growing needs. Indeed, 5% is still more of an increase in funding for that department than in FY 2005.
Make a Combination of cuts: Since Medicaid and “FamilyCare” are sensitive and
should actually help needy people (rather than State employees and campaign
donors), it might also be appropriate to make a combination of cuts. For
instance, taking a little over half of the needed cash from the Governor’s
massive new entitlements and taking the other half from an assortment of capital
expenditures and department cutbacks. The following changes should be
considered:
Not only can this Gas Tax Holiday be paid for without too much trouble on the part of the state’s officials, Illinois-STAMP demonstrates that there will be at least some tangible results from suspending the gas tax. Namely it predicts the creation of 1,313 new jobs this year, and marginal increases in personal income for those making under $25,000 a year.
About 20% of the recent increase in oil prices has been due to a falling U.S. dollar on international currency markets—especially compared to the Euro. In the past week, the dollar has rebounded and taken a nick out of the crude oil price—but not the price of gasoline, because there is actually less refinery capacity in the U.S. now than there was in 1980. Much of it used to be in Illinois ! Now like other energy-sensitive industries, those jobs are almost gone. While the dollar’s rise is desirable, the reasons it has risen are warnings of bad times ahead: interest rates and inflation are on the rise. If you have a variable rate mortgage, or a credit card with a flexible rate, you are going to have more taken out of your pocket just to maintain your current lifestyle. The rising interest rates are probably going to send some working-poor families over the edge into foreclosure.
Illinois families need a break. Reducing their prices at the pump is a good place to start.
“ Illinois State Budget Book” P.85