McDonnell's Transportation Plan

Governor Bob McDonnell has just released his transportation plan.  There are a few different parts here, and some are actually very thoughtful and interesting, while others don't deserve to be enacted.

PIECE ONE- The Governor proposes eliminating the gas tax and replacing it with a 0.8% increase in the sales tax.

The sales tax is extremely regressive and hits the poor, so I'm not generally in favor of increasing it.  However, the gas tax is also regressive and hits the poor.  What makes this part of the proposal look pretty good to me is the additional revenue it will generate in the "out years", i.e. a decade from now.  The reason this would create so much more in transportation revenue in 10, 15 or 20 years is the Obama administration has put into place tough new fuel standards on new cars being built.  Some go into effect by 2016 model year cars, others by 2025.  But the end result is a doubling in fuel efficiency- meaning a likely 50% drop in gas tax revenue over that time.  While some of that drop would be made up from new population growth, many young people are choosing to live in more urban settings with less need for cars, so those trends may basically offset, leaving us with half the revenue from the gas tax we have today.  That's half assuming we were able to index the gas tax to inflation, otherwise, we might have less than half of what the gas tax currently means in real dollars.  On the other hand, as the economy grows so does sales tax revenue.  If you assume the sales tax grows at the same rate of expected economic growth over the next decade, it's worth $1.60 for every dollar it currently generates, while the gas tax might only be worth $0.50 for every dollar it currently generates by 2025.  In other words, this change could be worth billions of dollars in revenue above the current system in future decades.

I think this might be the most workable and best part of the package.

PIECE TWO- Phasing in an additional 0.25% of the current sales tax into the transportation trust fund.

This is the worst part of McDonnell's proposal.  Sales tax revenue currently goes into the general fund- which pays for things like public education.  Removing revenue from that fund to put into transportation is cutting money from schools and putting it into roads.  Unacceptable, and if this stays in the final version of the bill, it would be a solid reason to vote "No" even with other good things included.

PIECE THREE- Increasing car registration fees by $15 and putting the revenue into transit projects.

This is a great part of the package.  Transit projects need more dedicated revenue sources.  It's a drop in the bucket, but still worth a new $50-$75 million dollars a year (and growing) into transit in Virginia.

PIECE FOUR- New $100 yearly fee on alternative fuel vehicles

This alone is not a reason to kill the package, but given all the subsidies the state gives to oil and gas companies, do we really need a fee on people driving the cleanest cars?  They are saving us a lot of money in pollution clean up costs, so why make them pay an additional fee?  Got to disagree with the Governor on this one.

PIECE FIVE- Marketplace Equality Act Revenue

This is a bill pending in Congress to charge sales tax for online purchases.  This was the bill that George Allen used to rail against ("No Internet Tax!") in the Senate that is now part of the GOP leadership's platform.  The Governor is proposing how to spend that revenue the state would get.  This part of the Governor's proposal isn't worth debating until Congress passes this bill and gets it to the President.  No telling what that final version will look like.

Overall, parts 1 and 3 look smart to me, part 4 isn't needed, part 2 is a deal killer and part 5 isn't relevant to the discussion.

One thing that would improve part 1 of this proposal- if the gas tax is going to be eliminated while increasing the sales tax from 5.0% to 5.8%, it would be smart to just increase the sales tax to 6.0% instead and phase out the 2.0% sales tax on food at the same time.  That would neutralize a lot of the most regressive parts of the sales tax increase as the working poor spend a huge amount of their income just feeding themselves and their families.

Comments

[VirginiaLib]

How regressive is the gas tax compared to the sales tax? Consider the large number of lower income individuals who aren't hit by the gas tax, be they senior citizens who either rarely or never drive, or college students living on or near campus and only sporadically drive, or low paid workers dependent on public transportation.

And finally ...

http://thinkprogress.org/climate/2008/04/15/202512/is-the-gasoline-tax-regressive/

[notlarrysabato]

Interesting arguments VirginiaLib. You should consider the census data though which shows the working poor being forced into exurban communities where they can afford to live- thus needing to spend more and more on gasoline.

[VirginiaLib]

Now THAT is something worth considering. There are the "stereotypical" working poor, for lack of a better description, in traditional metropolitan areas like Hampton Roads and Richmond. But especially in Northern Virginia, the working poor are being pushed further and further out into the exurbs. How do we address both groups with fairness?

[notlarrysabato]

I'd say by eliminating the sales tax on groceries like discussed above. That would help them more than any of these other changes would cost them.

[VirginiaLib]

I'm still not happy about shifting away from a user pays approach to transportation, but if this needs the support of any Democratic Senator in order to pass (in the off chance there's some random Republican who might vote against it), I hope they make the elimination of the sales tax on groceries their price, instead of something else silly.