Tax Scams Make Sensational News But Media Fails To Mention Adjusting Withholding To Reduce/Eliminate Refund

When we watch television (vs Netflix, etc) it’s usually CBS — KMOV 4.1 here — unfortunately their promos on tax scams/cheats seem nonstop. Wednesday morning I checked local news sources for similar reports. KMOV had 3 mentions on their homepage, the others didn’t — but many had stories from this month:

•  KMOV: Taking a stand against tax cheats
• KMOV: Tax Cheats: St. Louis Metro rises to #3 in identity theft cases
• KMOV: Why is it so easy for crooks to steal your tax refund?
• KMOV:  News 4 Investigates: Using tax credits to steal tax refunds
• KSDK: Crooks find loophole in tax fraud safeguard
• Fox2: Avoid tax scams with Wamhoff Financial
• Post-Dispatch: St. Louis woman admits tax fraud conspiracy
• Post-Dispatch: Florida couple indicted in St. Louis in ID theft, tax fraud scheme

These stories are designed to frighten you into worrying about someone steeling your refund — you go to file and someone else has already filed a return for you — taking your refund.  Meanwhile, commercials for auto dealers talk about using your refund as a down payment — some will even double it.  So a $3,000 refund becomes a $6,000 down payment.

Many get excited by a big refund — the bigger the better. The ideal, however, is little or no refund. Why? If you get a huge refund it means you’ve lent the federal & state governments your money interest-free.  A $7800 refund means you could’ve had another $15 in your pocket every week — $65/month.  I know some people use their refund as a savings plan, if so, put that amount into a savings plan every pay period rather than letting Uncle Sam hold it. In savings it’ll earn interest and should an emergency arise  — like car trouble — you can access your money.

You want your withholding set so you get little to nothing back at tax time. You can use the IRS’s Withholding Calculator to determine how your W-4 should be completed.

If you get a big annual tax refund you are leaving yourself vulnerable to fraud.

— Steve Patterson

If Missouri’s Fuel Tax Was The Same Percentage Of The Total It Was In 1996

When Missouri last increased the state fuel tax, in 1996, from 15-cents to 17-cents, the US average total price of a gallon of gasoline was roughly $1.084. The oldest records I could find for Missouri go back to 2003, but our are always less than the national average.

Assuming $1.07 per gallon in 1996, the 17-cent Missouri tax represents 15.89% of the price paid at the pump. In July 2008 Missouri gas prices peaked at $3.96, the state fuel tax representing only 4.29% of the total price paid. Recently Missouri’s average was $3.28/gallon, the fuel tax representing 5.18% of the total price per gallon.

How much would gas cost today if Missouri’s fuel tax was 15.89% of the total? To answer this we must do a series of calculations:

$3.28 – $0.17 = $3.11 (cost before Missouri tax)

1 – 0.1589 = .8411 (cost before Missouri tax = 84.11 % of total)

$3.11 / 0.8411 = $3.6975 or $3.70 (current cost if Missouri tax is 15.89% of total)

$3.70 – $3.11 = $0.59 (Missouri gas tax if 15.89% of total)

So there you have it, a gallon would cost $3.70 and the Missouri tax would be 59-cents. At 17-cents we’re only collecting 28.8% of the funding we did in 1996, relative to the total cost of a gallon of gas. To get to 59-cents we’d need to raise the tax 42-cents, or 347%! I’m not advocating we raise the state fuel tax this much, doing so would make ours the highest in the country. The purpose of this exercise is to show that relative to 1996 our revenue is about a third of what it was the last time our fuel tax was increased. A third!

In 1996 the average fuel economy of a new car was 28.5 mpg. Driven 15,000 miles per year the driver would buy 526.3 gallons of gas for a total cost, ignoring fluctuations in price, of $568.40. Of this, Missouri would’ve received $89.47. The average fuel economy for a 2013 model car is 36 mpg, a substantial improvement. Driven 15,000 miles per year the driver would buy 416.7 gallons of gas for a total cost, ignoring fluctuations in price, of $1,366.78. Of this, Missouri would’ve received $70.84. Eighteen years later the driver spends 140% more on fuel, but Missouri receives less. Of course, with inflation the cost to maintain roads & bridges is higher nearly two decades later.

As I’ve said previously, if we’d continue to raise the fuel tax 2-cents ever two years, like we did 1992-1996, we’d now be at 34-cents. Our bridges & roads would’ve been funded and maintained all along.

If our state tax was suddenly doubled from 17-cents to 34-cents the total price of a gallon would be $3.45, instead of the current $3.28. The 34-cent tax would be 9.855% of the total cost of a gallon. Not as much as in 1996, but much better than today.  Diesel fuel taxes need to be raised in a similar manner.

In the same example as above the driver of the 2013 car would still need 416.7 gallons, but now the total cost would be $1,437.62. Missouri would receive $141.68 from this motorist to maintain the bridges & highways.

The question now is how quickly can/should we raise the fuel taxes?

— Steve Patterson

St. Louis City & County Voters Rejected Same Four Amendments, Two Approved Statewide

A decade ago Missouri voters amended our state constitution to ban same-sex marriage, but the majority of voters in the City of St. Louis voted no. As is often the case, city voters differed from state voters. I’ve not looked at previous elections, but this year voters in St. Louis County voted against the same four amendments.  Two amendments city & county voters rejected, Amendments 1 & 5, were approved by statewide voters.

I couldn’t locate statewide information on the number of ballots cast from each party, most likely greater than half were Republican.

The amendment that received the most votes was #7, a 3/4-cent sales tax for roads.

Transportation officials have been working for more than a decade to find more money. In 2002, voters defeated a proposed $483 million sales and fuel tax increase.

“There is no perfect solution,” said Kehoe, the sponsor. He said Amendment 7 was crafted around polling that showed a sales tax was most likely to pass at the polls. He said the fuel tax would have to be raised 20 to 25 cents per gallon to generate the money needed. (stltoday)

As you’ll see, Missouri has long resisted increases in the fuel tax. Here is the text from MoDOT’s funding history page:

Funding History

 2008

In July, the start of fiscal year 2009, Amendment 3 is fully phased-in, providing MoDOT with all of the motor vehicle sales tax revenues previously going to General Revenue.

MoDOT sold bonds for a portion of the new Interstate 64, a design-build project in the St. Louis region. For the first time, MoDOT secured bonds primarily with federal funds, rather than state funds. These bonds are called Grant Anticipation Revenue Vehicle (GARVEE) bonds.

2004
In November, Missouri voters approved Constitutional Amendment 3, which requires all revenues collected from the sale of motor vehicles come to MoDOT. Previously, half of the sales tax went to MoDOT and half to the state’s general revenue fund. It requires the Missouri Highways and Transportation Commission to issue bonds for building highway and bridge projects and uses these additional revenues to pay back the bonds over a period of time. The additional Amendment 3 revenues are to be phased-in over a 4 year period in 25 percent increments.

2002
Legislation is passed extending the 6-cents-per-gallon motor-fuel tax, which was due to expire in 2008. Proposition B, an omnibus transportation bill that would have increased the motor-fuel tax by 4 cents per gallon and the general sales tax by 1/2 percent, is defeated by voters by a 3-to-1 margin.

2000
Legislation was passed, effective May 30, 2000, allowing MoDOT to issue $2.25 billion in bond financing to accelerate highway improvements. Up to $250 million in bonds can be issued in 2000 and up to $2 billion from 2001 through 2006. Projects funded by the first $250 million were required to come from MoDOT’s 5-Year Statewide Transportation Improvement Program. MoDOT can issue up to $500 million per year in bond financing through the year 2006. MoDOT submits a bond financing project list to the Legislature each January for approval.

1992
A 6-cent per gallon increase in the motor fuel tax is passed by the Legislature. The 6 cents is to be phased in over a 5-year period; 2 cents in 1992, 2 cents in 1994 and 2 cents in 1996.

1987
Proposition A, a constitutional amendment to increase the motor fuel tax by 4 cents per gallon, is approved by the people. It becomes effective June 1.

1984
Fees for motor vehicles and truck classes not raised in 1983 are increased.

1983
Fees for some classes of trucks are increased.

1982
Proposition B, a constitutional amendment to raise the motor fuel tax by 4 cents per gallon, is defeated by the people.

1979
Voters approve a constitutional amendment changing the CART distribution formula. Counties receive 10 instead of 5 percent, cities receive the same 15 percent and the state receives 75 instead of 80 percent. The law is effective Jan. 1, 1980. The amendment also merges the Highway Department with the Transportation Department. Also included in this legislation is a provision that one-half of the motor vehicle sales tax go to finance road and bridge construction. Of this half, 74 percent would go to the state, 15 percent to the cities and 10 percent to the counties. The remaining 1 percent goes for planning of other transportation modes.

1978
An initiative petition to increase the fuel tax 3 cents per gallon is defeated.

1972
The Legislature passes a bill increasing the gas tax from 5 cents to 7 cents per gallon.

1961
The Legislature passes a bill temporarily raising the fuel tax from 3 cents to 5 cents per gallon. The bill provides that a constitutional amendment be put before the people which would allow cities and counties to share in state motor fuel tax revenues. If the amendment is not submitted within six months, or if it is rejected, the tax would revert to 3 cents. Voters approve the amendment on March 6, 1962, and the 5-cent per gallon tax becomes permanent. This act establishes the County Aid Road Trust program.

1952
On March 24, an act is approved increasing the motor vehicle tax from 2 cents to 3 cents per gallon. The law becomes effective July 29.

1950
On April 4, Missourians again reject a referendum proposal to increase the motor vehicle tax. The proposal would have increased the tax from 2 cents to 4 cents per gallon.

1938
On Nov. 8, the people defeat by referendum election an attempt of the Legislature to raise the fuel tax from 2 cents to 3 cents per gallon. At the same time, an initiative petition proposal to amend the Constitution to fix the fuel tax at 3 cents for 10 years is also defeated.

1924
A 2-cent tax rate for motor vehicle fuel is adopted by a vote of the people under initiative petition. It is the state’s first motor fuel tax.

From the above I made this list of the fuel tax rate since 1924:

• 1924 2-cents
• 1952 3-cents (28 years, 100% increase)
• 1961: 5-cents (9 years, 66% increase)
• 1972: 7-cents (11 years, 40% increase)
• 1987: 11-cents (15 years, 57% increase)
• 1992: 13-cents (5 years, 18.18% increase)
• 1994: 15-cents (2 years, 15.38% increase)
• 1996: 17-cents (2 years, 13.33% increase)

It has now been 18+ years since the fuel tax was increased, the only period longer was the first increase after the initial tax! Had the 1990s 2-cent increase every two years continued we’d be at 34-cents — double the current rate. We’d still be lower than Illinois and many other states. Amendment 7 proponents say voters rejected a 2002 attempt to raise the fuel tax rate. From above: “Proposition B, an omnibus transportation bill that would have increased the motor-fuel tax by 4 cents per gallon and the general sales tax by 1/2 percent, is defeated by voters by a 3-to-1 margin.” They’d proposed a measly 4-cent fuel tax increase combined with a 1/2-cent general sales tax. I don’t recall how I voted a dozen years ago, but I likely voted no based on the general sales tax increase.

Here’s what should happen:

• The Missouri legislature should pass legislation to double the fuel tax from 17-cents to 34-cents over the next 5-10 years.
• The Missouri legislature should pass legislation make I-70 a toll road between Kanas City and St. Louis. This revenue, not the fuel tax, would be used to widen I-70.

We do need to maintain our infrastructure, we should be cautious about adding to the system if we aren’t willing to raise the fuel tax. Why build more miles of highway if we can’t maintain what we have now?

— Steve Patterson

Why I’ll Be Voting Against the Sales Tax Increase in November

In November Missouri voters will be asked to raised the state sales tax by three-fouths of a cent, earmarked for transportation projects:

The tax increase would generate an estimated $534 million a year, with 90 percent of the money going to state projects and 10 percent to local projects. It would run for 10 years.

Critics say sales taxes are hardest on low-income people because a higher percentage of their income goes toward buying essential items. However, the 3 percent general fund portion of the current state sales tax of 4.225 percent is not applied to groceries or prescription drugs, and the increase would not be, either. (stltoday: Voters will decide whether to boost Missouri sales tax for highways, transportation)

Missouri’s current fuel taxes are below the national average, and the legislature squashed Gov Nixon’s veto of a state income tax cut measure.

In five annual steps beginning in 2017, the bill will cut the state’s top personal income tax rate to 5.5 percent from 6 percent and provide a new 25 percent deduction for business income reported on individual returns.

The cuts will be implemented only if state general revenue grows by at least $150 million a year compared with the high-water mark of the previous three years. (stltoday – Missouri Legislature overrides Nixon’s tax cut veto)

Back to our low fuel taxes:

All over the state roads & bridges are crumbling, and I’m a huge fan of investing in infrastructure. So why am I voting no? Simple, the money has to come from somewhere, but sales taxes on necessities (groceries, clothing) is the worst way to fund transportation.   The better option is to start by increasing our very low gas & diesel tax:

The gasoline tax has a lot of virtues from an economic point of view. It matches costs and benefits, because drivers who buy the most fuel are also causing the most wear on our roads. It’s easy to collect and hard to evade.

The fuel tax tends to be unpopular with the trucking industry, which would rather have the rest of us pay for the infrastructure that it uses most intensively. And trucking lobbyists tend to have a lot of clout in state capitols, which may be why the Legislature is talking about raising the sales tax instead of the gasoline tax. (stltoday: Sales tax is wrong way to pay for Missouri roads)

What about Oklahoma, why is their gas tax is 3 cents less per gallon? We should do what they do to keep from raising our fuel taxes, you might say. Fine by me!

Oklahoma has 10 turnpikes, more than 600 miles of pavement, making the state second in the nation for miles of toll roads. (Oklahoma Doesn’t Make Profit On Turnpikes; Who Does?)

Tolls, like fuel taxes, makes those who use the infrastructure pay for the infrastructure. I’ve paid more to Oklahoma  in tolls than in fuel taxes the last 23+ years of driving back to visit family.

A common misconception is more fuel efficient cars, hybrids, & electric vehicles have significantly reduced revenues collected from fuel taxes. It’s true, cars are more efficient:

Cars and light trucks sold in the United States hit a new record for fuel efficiency last year — 23.6 miles per gallon, on average — in response to still-high oil prices and strict new fuel-economy standards.

That’s a big step up from the 22.4 miles per gallon average for new vehicles in 2011. And overall fuel economy is expected to increase to 24 miles per gallon in 2013, another record. (Washington Post: Cars in the U.S. are more fuel-efficient than ever. Here’s how it happened.)

But that’s not why fuel taxes don’t cover needed work, just look at the federal highway trust fund:

The Fund is paid for by the federal gas tax. The gas tax has not been raised in over twenty years. Many items have doubled or tripled their cost since 1993. For example, a new car cost $12,750 in 1993, yet in 2013 a new car cost $31,252. The easiest explanation is that we are trying to build a 2014 infrastructure system with 1993 dollars. This is obviously an untenable formula. (Highway Trust Fund 101: What You Need to Know) 

Yes, the cost to build & maintain our infrastructure have been increasing while the Missouri & federal rate has remained flat.  For years inflation was masked because gasoline sales and total vehicle miles driven increased year over year, the funds grew too.

Rising costs and a slight drop in gallons of fuel purchased doesn’t mean we should now start taxing every purchase to maintain roads & bridges. But yes, the number of hybrids and others has increased, but the percentage is small relative to the big picture:

The number of alternative-energy vehicles on the road grew to almost 3.1 million in 2013, compared with 2.5 million in 2012, according to the study. In 2013, nearly 72,000 vehicles were pure electrics and three million were hybrids, compared with 21,000 pure electrics and 2.5 million hybrids in 2012.

Data for the analysis comes from Experian Automotive’s database, which includes information on nearly 700 million vehicles in operation. (New York Times – Experian Study Highlights Differences Between Hybrid and E.V. Owners). I encourage you to contact your elected officials in Jefferson City and Washington D.C to tell them to increase  the fuel taxes, not the sales taxes on goods. In November, please vote no on this sales take hike.

— Steve Patterson

Readers: Raise Missouri’s Fuel Tax

Some are working to get a measure on a state ballot in 2014 to increase the state sales tax to fund road infrastructure. I don’t know the view statewide, but readers made it clear last week that increased sales taxes on all purchases is the least desirable option: 

Q: How should Missouri make up the shortage in funding for roads & highways? (pick 2)

1. Increase the state fuel tax 79 [40.31%]
2. Toll some highways 58 [29.59%]
3. Increase auto licensing fees 31 [15.82%]
4. Close unsafe highways/bridges rather than maintain/replace them 16 [8.16%]
5. Increase the state sales tax 8 [4.08%]
6. Unsure/No Opinion 4 [2.04%]

Closing highways and bridges came in ahead of an increase in sales taxes. Here’s a look at how we got to our tax rate: 

1992

A 6-cent per gallon increase in the motor fuel tax is passed by the Legislature. The 6 cents is to be phased in over a 5-year period; 2 cents in 1992, 2 cents in 1994 and 2 cents in 1996.

1987

Proposition A, a constitutional amendment to increase the motor fuel tax by 4 cents per gallon, is approved by the people. It becomes effective June 1. (MoDOT)

Where does this put Missouri comported to other states? Forty-fifth!

Some say fuel tax isn’t enough to do everything on MoDOT’s wish list. Probably true, but starting with fuel taxes is better than sales taxes. I also think tolling some urban highways is a good idea, I-270 comes to mind.

 — Steve Patterson