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One-sided tax equations

Eliminating the state’s 7 percent sales tax on gasoline, as Democratic candidate for governor John Gregg proposed last week, is worthwhile – but not for the reasons Gregg intended.

How can you go wrong with a proposal to cut taxes?

For Democratic gubernatorial candidate John Gregg, it’s in explaining exactly how he’ll make up more than $500 million a year in lost sales tax revenue on gasoline. Before Hoosier voters grow too attached to any tax-cutting scheme, they must consider all costs.

Gregg’s proposal last week was to eliminate permanently the state’s 7 percent sales tax on gasoline.

“I am convinced this will fire up our economic engines and put more money in the pockets of Hoosiers,” the former House speaker said.

It’s likely that some of the savings to motorists would be used elsewhere and, in turn, generate jobs and more tax revenues. But Gregg’s faith in an annual efficiency audit to free up as much as $650 million a year seems like a stretch. The likelihood of finding more efficiencies in state government seems remote given the budget-crunching done by the current administration. At Gov. Mitch Daniels’ direction, state agencies reverted 10 percent of total appropriations in 2009. State programs and services took a major hit, but operating costs certainly weren’t spared.

Gregg’s tax-cut plan probably won’t be the only such proposal in the campaign for governor. Congressman Mike Pence, the GOP candidate, already has suggested he will seek to reduce corporate income taxes and abolish property taxes on business equipment. Again, any such proposal should come with a detailed accounting of where the lost revenue will come from.

If Gregg’s proposal has value, it’s in reviving debate about Indiana’s revenue sources. Indiana is one of just nine states to charge sales tax on gasoline, but other states have higher fuel taxes. Indiana’s fuel-tax rate is 18 cents a gallon, while Ohio charges 28 cents a gallon. In addition, federal fuel taxes are 18.4 cents a gallon.

Sales tax revenue from gasoline goes toward the state’s general obligations, not to road and highway funds. Neither does fuel-tax revenue go entirely to road construction and repair; some goes to the operations of the Indiana State Police and Bureau of Motor Vehicles. If Indiana can find a way to eliminate sales tax on gasoline, it makes sense to consider a slight increase in fuel taxes to improve crumbling infrastructure – and create jobs in the process.

A political campaign is a good forum for proposing ideas; the legislative process is the proper place to vet them. Whatever changes Indiana makes to its current mix of taxes must consider the entire equation.