Part 4 of a 7-part report
WALL TOWNSHIP, N.J. -- If Sal Risalvato could do it all over again, he would have been clearer to New Jersey legislators about the maximum gas-tax increase that retailers could shoulder.
The fact that Risalvato had supported the 2016 gas-tax increase—New Jersey’s first in 28 years—was in itself remarkable. For nearly three decades, from his beginnings as a Texaco dealer to his role leading the New Jersey Gasoline, C-Store and Automotive Association, Wall Township, N.J., he had battled against one. But the truly abysmal condition of the state’s transportation trust fund was tough to ignore.
For years, New Jersey had not been collecting enough revenue from fuel taxes to meet the state’s infrastructure needs, and so it borrowed the rest. It was the less politically painful option.
“After 20 years of that … we were no longer borrowing to spend on transportation; we were borrowing to pay down interest,” he says. “We had nothing left for transportation. So we had to borrow for that too.”
By July 2016, the fund had lost its ability to borrow any more money—and it had a looming $1.2 billion interest payment due, not to mention no money to pay for roads.
Around this time, Risalvato got word that legislators were considering extending the state’s 7% sales tax to gasoline to help boost transportation funding. A sales tax on gasoline was a nonstarter for Risalvato. Because fuel prices change daily—and sometimes more often—the retailer would need to recalculate the sales tax on three grades of gasoline and diesel. If it offered different prices for cash and credit
payment, it would need to calculate another four different sales tax amounts. And the state would need to spend money on collections.
“You’re creating a nightmare for my members, and a situation where the state doesn’t get to keep all of the money they’re collecting,” he says.
So Risalvato made a bold proposal: He would support a fuel-tax increase if legislators dropped the sales-tax idea.
“I can see the cliff we’re about to drive over with roads and bridges,” Risalvato recalls telling legislators. “If you guys just raise the motor-fuels tax to where it’s supposed to be, I won’t poke you in the eye.”
In fact, he wrote an editorial printed in three major New Jersey newspapers asking citizens to support a gas-tax increase.
His ultimatum: “Keep sales tax out of this and we’re friends. Put a sales tax on it and we’re at war.”
Legislators eventually dropped the idea of a sales tax on gasoline and instead agreed on a 23-cent-per-gallon (CPG) increase in the motor-fuel tax, to begin Nov. 1, 2016. New Jersey went from having the second-lowest gas tax in the country to the sixth-highest.
The size of the gas-tax increase surprised Risalvato; he was expecting a 15- to 20-CPG jump, which would keep the state’s prices competitive with New York. And that is exactly how it played out: New Jersey’s gas-tax price advantage with New York shrank from 30 CPG to 7 CPG.
Some of Risalvato’s members near the northern New Jersey border saw fuel volumes plummet 25%.
“The mistake I made is I didn’t put a limit on it,” says Risalvato. “They still would have proposed the 23 cents, [but] it would have given me the freedom to say ‘That’s not part of the deal.’ I could have at least fought back.”
A ‘Pure’ Tax
Of all the excise taxes states levy, the fuel tax could be the most acceptable, says Scott Drenkard of the Tax Foundation.
“I don’t like discriminatory taxation,” he says. “But the one instance where it’s OK to have an excise tax on one particular good is when the use of that good approximates the use of some public good.”
Gas taxes and tolls help pay for infrastructure that payers of the tax are using, which makes them seem more fair.
Since 2013, 26 states including New Jersey have adjusted their fuel tax, according to the Institute on Taxation and Economic Policy. Seven states raised theirs on July 1, 2017, with low gasoline prices easing the increases. The effect on consumption in the short term is relatively inelastic (border dynamics notwithstanding). “Even if the price of gas went up $3 tomorrow, there are some people who need to get to work tomorrow and will get soaked for that day,” says Drenkard. “In the long term, gas consumption is actually less inelastic; then people can plan around it.”
Next: Wage Wars