On Tuesday, Jill Long Thompson proposed capping the state sales tax on gasoline if she is elected governor.  No problem so far.  This has been standard Democratic policy for years, from House Speaker Pat Bauer on down.  But Long Thompson’s numbers have problems in a couple of areas.

  She plans to cap the tax at $2.75 a gallon.  That’s the pure price of the fuel, before federal and state excise taxes and the sales tax are added on.  Hoosiers would be charged the sales tax on anything up to that figure, and nothing over it.  But if you take $2.75, then add in $.42 in excise taxes and $.19 in sales tax (7% of $2.75), it comes to $3.36, which is more than the price right now in the Indianapolis metro area.  So drivers wouldn’t save anything right now.  Of course, if the price rises dramatically this spring, as it seems to do almost every year anymore, you would save.  If the price hits $4.00, your savings would be almost five cents a gallon.

  Long Thompson also estimated the total price Hoosiers would save (based on $3.25 a gallon) at $100 million.  As we’ve just shown, they wouldn’t save anything at that number.  But even conceding her numbers are correct, that’s a big chunk out of the state treasury, especially at a time when tax receipts are consistently failing to hit their projected numbers because of the economic slowdown.  But Long Thompson says that’s okay, because Hoosiers would turn right around and spend that, so the state would get it back on sales taxes on their new purchases.  The only problem is that the state would only get $7 million, while the merchants would collect $93 million.  And that’s assuming everybody spent their savings on taxable items.  If they took their windfall to the grocery store and bought steak instead of hamburger, the state would get nothing.  Basic tax math: if the state gives up 100% of something and gets back 7%, it doesn’t break even.  And since sales tax money is a crucial element of the property tax relief going out to homeowners this year, it might not be such a good deal.