Amidst the whirl and rush of Governor McDonnell’s transportation tax hike and the redistricting fun, Delegate Dave Albo (R-Southern Fairfax) released his own plan for transportation funding. It is far more complex than McDonnell’s, and it raises the gas tax rather than eliminate it. It also includes a number of taxes that would be locally enacted, an attempt to offload revenue responsibility to local governments (although, unlike the infamous HB3202, the localities will not risk losing state funding if they refuse to enact the tax hikes). Yet it reduces income taxes and eliminates the food tax entirely.
In its current form, Albo’s is also a tax increase. As such, I would oppose it. However, with a few tweaks, it could become a net tax cut. Based on the fiscal impact statement, I see two ways to make Albo’s plan taxpayer-friendly:
- Remove the “unknown gain” pieces (namely the market-based sourcing idea for the corporate income tax and the long term care insurance tax credit repeal), take out the locally enacted tax increases, and increase the income tax reduction from 0.2% to 0.4%
- Remove the aforementioned “unknown gain” pieces and increase the income tax reduction from 0.2% to 0.55%. Even with the locally enacted taxes, the plan would be a net tax cut.
Neither version would reduce the transportation funding in the plan.
Now, one could argue that McDonnell’s plan could be made taxpayer-friendly as well. However, there are several advantages to using Albo’s plan as the basis…
- Albo’s plan has more money for roads. Under the Delegate’s plan, over $800 million a year would go to transportation at a minimum (i.e., not including local taxes that may or may not be enacted). The governor’s plan would only provide $600 million a year at a maximum, with over a third of that dependent upon an internet sales tax that would have to be enacted by Washington (and was shelved last year).
- Albo’s plan can be made taxpayer-friendly without affecting transportation funding; McDonnell’s can’t. Any attempt to reduce revenue in the Governor’s plan would reduce funding for roads. By contrast, because the Delegate puts the income tax rate on the table, it can become a net tax cut with a deeper reduction in the income tax – leaving the road revenue sources untouched.
- Albo’s plan reduces the income tax. For those of us who are supply-siders, income tax reduction is a key part of long-term economic growth, unlike the Keynesian demand-driven consumption tax cuts (which both plans do have). This will surprise many, but for incomes between $5,000 and $250,000, Virginia’s income tax rate is higher than Maryland’s (above $250,000, they’re the same).
Now, let me repeat with emphasis: Albo’s plan as-is would be a net tax increase and not worthy of support. However, it could become a plan friendly to the taxpayer with either of the two options above.