Last week, my colleague Joe Henchman and I authored a blog post on Virginia Governor McDonnell’s new transportation plan, and we’ve since been quoted in various local and national media on the subject. Our main criticism is that McDonnell’s plan, which would eliminate the statewide 17.5 cent per gallon gas excise taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. and replace it with a 0.8 percentage hike in the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. , would disconnect drivers with the road services they use.
After releasing our analysis, Joe and I were excited to see that we have a few allies on the progressive side on this issue. Reuters posted a story featuring Henchman and ITEP’s Carl Davis in lock step on McDonnell’s plan, with Davis quoted as saying, “when it comes to highway policy, it’s important to follow the ‘benefits principle’ of taxation: people who use the roads the most should be required to pay the most for those roads. It’s a basic issue of fairness.”
Today, I’m very troubled to learn of Virginia Democrats’ plan for transportation in Virginia, which largely goes against ITEP’s advice. The good news is that their plan would raise the gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. by 10 cents over the next two years, and then index the tax to inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. thereafter, devoting that revenue to transportation funding. The bad news is that the plan would even more aggressively hike the state sales tax from 5 percent to 6 percent, with half of the new sales tax revenue going to transportation and the other half going to public education.
Ideally, road funding should come from a combination of tolls and gasoline taxes. That way, drivers who use roads most pay a roughly proportionate share of the costs of providing the roads. Tolls are better than gas taxes in this regard, as they eliminate problems with cross border gasoline shopping that can skew the user-pays/user-benefits system. By contrast, funding transportation out of general revenue sources makes roads “free,” and non-drivers or infrequent drivers pay a disproportionate share of road funding. The result is overuse, increased congestion and more frequent road repairs. As a Virginia native, I know that these things are the last thing the Commonwealth needs.
As a small side note, Virginia’s 5 percent general sales tax is one of the most competitive in the region, and these gimmicks by both parties would diminish that competitive edge.
More on Virginia here.
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