This afternoon, Governor Bob McDonnell proposed a transportation funding plan highlighted by the elimination of the gasoline tax. Despite that, the plan itself increases taxes overall – and is largely dependent on a federal tax hike bill that died in a House Committee last year.
There is sadly little good to say about the McDonnell proposal, so I’ll get that out of the way first: the proposal to increase the piece of the existing sales tax dedicated to transportation (from 0.5% to 0.75%) – projected to provide over $800 million for roads over the next five years – is a wise prioritization of our transportation network. Also, replacing the gas tax with a higher sales tax has its benefits, in theory in that it ties Virginia’s roads to economic activity in the state. That said…
The sales tax increase is too high, making it an overall tax increase: By the Governor’s own numbers, over half a billion dollars ($607M to be exact) will be taken from Virginians over the next five years.
The $15 car fee is not a fee at all, but a tax under a different name: Had the registration fee been slated for roads, one could have accepted it as a user fee. However, it will fund not roads, but rail. That makes it a tax by any other name (and it still hurts).
The Alternative Fuel Vehicle Fee contradicts the idea behind the gas tax elimination: One of the arguments against a gas tax is that more fuel-efficient car owners will pay less in tax – and thus pay less for the roads they are using. If the gas tax were still in place, one could see this feel as a balance, although it would reduce the incentive for more ecologically friendly vehicles (this is always a double-edged sword with the gas tax). However, without a gas tax, this fee unfairly hits fuel-efficient car owners, and discourages ecological friendly cars.
And finally, reliance on the Marketplace Equity Act for over $1B essentially places control of this plan in the hands of Congress – and it, too, is a tax increase: Under the MEA, states would have “the authority to compel remote sellers to collect sales tax for the state into which sales are made” (Governor’s Fact Sheet). It sounds all well and good, but when a government decides to collect a tax previously uncollected, it is a tax increase – with all the economic damage that comes from it. Greece tried this game when it attempted to stop its laxity towards tax collection; economic growth hasn’t been seen there since. Moreover, the $1.15B that is supposed to come from this is entirely dependent upon Congress passing the bill – never mind that it couldn’t even get out of a House Committee last year, and that now no Democrat in Washington has any incentive to pass it.
Finally, there was no effort to examine the spending side of the equation: All subdivision roads in 93 Virginia counties (Arlington and Henrico fund their own road networks) are still state funded, despite the fact that hardly anyone outside of the subdivision residents themselves benefit from them. An excellent chance to privatize a large chunk of Virginia’s road network was ignored. That’s just one example.
All in all, the plan does a few things right, but many, many more things wrong, and is singularly focused on revenue while ignoring spending.
Cross-posted to Virginia Virtucon