Virginia May Consider Gasoline Tax Increase

December 11, 2012

In FY 2013, the Virginia state government is expected to spend around $4.9 billion on transportation, including some $4.1 billion on roads. However, the state gasoline tax of 17.5 cents per gallon will raise just $961 million; other road- and vehicle-related state taxes raise another $1.3 billion. No matter how you slice it, Virginia is spending way more on transportation than it raises in state transportation-related taxes, with the difference made up by federal aid and general state tax revenue. And all this is before you take into account the seeming bipartisan state consensus that the state isn’t spending enough now on transportation.

Governor Bob McDonnell (R-VA) has recently hinted that he isn’t oppose to raising the state’s gasoline tax, and a recent poll found Virginia voters want more spending on transportation although they would prefer tolls to higher taxes. The gas tax is attractive because it might get bipartisan support, and Virginia is surrounded by states with higher gas taxes (North Carolina, to the south, is nearly twice that of Virginia.)

This chart shows why Virginia’s gasoline tax revenues are inadequate at meeting the state’s annual road spending needs. It plots Virginia’s gasoline tax since it was created in 1923 to today, two ways. The bottom line is the tax rate in nominal cents, from when it started at 3 cents per gallon to today’s 17.5 cents per gallon. The other line puts the tax rates in today’s dollars: so while today’s gas tax is still 17.5 cents, that 1923 rate was worth 40 cents in today’s money. Looking at it this way, the Virginia gas tax is at a historically low rate, having peaked in the Great Depression at the modern-day equivalent of 89 cents per gallon. (Coincidentally, if you raised all of Virginia’s current transportation spending from the gasoline tax, that would require a rate of 89 cents per gallon.)

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