In his transportation budget, Gov. Ted Strickland sought to raise an additional $38 million in tax revenue by increasing taxes paid by gasoline wholesalers. The governor calls it a tax break reduction. Yesterday, Republican legislators largely accommodated his request for more funds (raising an additional $30 million in taxes).

While the governor wanted a substantial tax increase to apply exclusively to gasoline wholesales, Republicans on the House Finance and Appropriations Committee spread the pain by reducing the amount of the increase and adding gasoline retailers. The Ohio House passed the bill.

Their action will cost Ohioans.

As Tax Foundation Economist Curtis Dubay puts it, “The larger issue here is that companies don’t pay taxes, people do!” Wholesalers and retailers will pass along higher costs to consumers, cut jobs and offer lower wages, or do both. This is the indisputable economic reality of tax increases (or tax break reductions).

Dubay adds, “However, from a tax policy perspective, it is best to have the broadest base possible so that the tax has the least possible amount of influence on the market. Of course, closing a loophole or eliminating an unjustified deduction increases taxes. The best method, therefore, is to lower rates while closing loopholes and eliminating deductions. Base-broadening shouldn’t be used to generate more revenue, but to make the tax more economically efficient.”

Also in the bill, legislators added an inspector general to investigate waste in highway construction – a good and prudent move. Perhaps they should have also asked someone to investigate what happened to Republican tax cutters.

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