TRAVELING DURING the holidays? As we drive east out of Ohio and into Pennsylvania, we know to fill the gas tank before we cross the border. According to the Tax Foundation, Pennsylvania has the third-highest gasoline tax in the country, behind California and Illinois, and about 20 cents per gallon higher than Ohio.
All states have to balance their budget. But they take very different approaches. This provides 50 experiments in taxation—and those taxes influence our behavior.
Gasoline taxes are essentially user fees, and user fees are thought by many to be a fair form of taxation. After all, shouldn’t those who use the roads pay more for their upkeep? Tolls also target users and, yes, Pennsylvania has those, too. A challenge for the future is electric cars. By not paying gas tax, they’re getting a free ride (pun intended). Some might see that as a reward for going green. But who will pay for the roads?
I’ve long wondered how much Pennsylvania loses in gasoline sales to surrounding states. When I lived near the border, a coworker religiously filled up his SUV in Ohio before returning home to Pennsylvania.
Meanwhile, sin taxes seek to curb undesirable behavior or, failing that, at least fatten the state’s coffers. If you ignored your mother’s warning that smoking stunts your growth, don’t pick up a pack in New York or Connecticut, which are tied for the highest tax at $4.35 per pack. New York City levies an additional $1.50. Variations in tax rates between states can have the presumably unintended consequence of encouraging illegal behavior. The Tax Foundation links higher cigarette taxes to increased smuggling. With only a 45-cent tax on cigarettes, could North Carolinians be funding holiday trips to see the Rockette’s Christmas Show with a trunk full of smokes?
Now that you can legally pursue cigarette alternatives, states are adding a tax on vaping products and marijuana. It would be ironic if, even as marijuana is increasingly legalized, variations in state tax rates lead to illegal smuggling, as it has with cigarettes.
If all this talk of sin taxes makes you want a stiff drink, know that New Hampshire and Wyoming level no tax at all on distilled spirits. Instead, they profit by selling through state stores. The highest spirits taxes are in Washington and Oregon, states known for their wine production.
Speaking of wine, our friends in Pennsylvania and four other states levy no tax on the grape. The biggest wine tax is in Kentucky. Perhaps a shot of bourbon will hit the spot instead.
Want a cold beer? Head to Wyoming, Missouri or Wisconsin for minimal tax. Wasn’t there a beer that made Milwaukee famous? The makers of Jack Daniel’s Tennessee Whiskey are probably pleased that their state has the highest tax on beer. After all, liquor is quicker.
If instead of traveling, you’re thinking of relocating, you may want to choose a state with a low overall tax burden. New Yorkers, who face the nation’s highest tax burden, don’t have to move all the way to Alaska, which has the lowest. Instead, any of the other 48 will reduce the bite. Which one should New Yorkers choose? How about picking a state that doesn’t heavily tax their chosen sin?