McDonnell Plan Cuts Gas Tax, Raises Sales Tax
Virginia governor's proposed $3.1 billion transportation overhaul gives higher percentage of sales tax to projects, leaves tax on diesel in tact.
By Mark Robinson, Capital News Service
RICHMOND — With the General Assembly set to convene, Gov. Bob McDonnell proposed Tuesday increasing Virginia’s sales tax and abolishing its nearly 27-year-old gas tax, making Virginia the first state in the country to do so.
The measures are a part of the governor’s proposed $3.1 billion plan to fund improvements to Virginia’s transportation system over the next five years. The funds would supplement $14 billion of transportation projects already under way in the commonwealth, the most in Virginia’s history.
“Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail and the growing cost of major infrastructure projects necessitate enhancing and restructuring the commonwealth’s transportation program and the way it’s funded,” McDonnell said at a press conference.
McDonnell described the state’s gas tax as “outdated” because of inflation and better fuel economy since it was last changed in 1986. He said boosting funding for transportation was the only way to ensure Virginia could continue its economic growth.
Among his proposed changes:
- The current 17.5 cents per gallon gas tax, which accounts for more than 30 percent of the state’s transportation revenues, would be eliminated; instead, the sales tax would increase from 5 percent to 5.8 percent. McDonnell predicted this would generate more than $600 million in additional transportation funds. The 17.5 cent tax on diesel would remain intact.
- To supplement the increase in sales tax, a higher percent of the state’s sales tax would go directly to transportation funds — from 5 cents to 75 cents over the five years.
- The plan would impose an increase of $15 for each vehicle registration, resulting in an average vehicle registration cost of $56 per vehicle, McDonnell said.
- The state would impose an annual $100 alternative fuel vehicle fee. The governor dismissed the idea that the fee would deter people from buying alternative fuel vehicles. More than 91,000 are currently registered in Virginia.
McDonnell’s plan would use new revenues and more money from the general fund — an approach he said would appease lawmakers on both sides of the aisle. In the past, Republicans have supported using money from the general fund for roads as a core function of government. Democrats, on the other hand, have rejected previous attempts to use general fund dollars for transportation.
The General Assembly will consider the governor’s proposals during the 45-day legislative session that begins Wednesday.
If passed, the measures would take effect July 1. The Republicans hold a majority in the House of Delegates and a tie-breaking vote in the Senate. Lt. Gov. Bill Bolling, who presides over the Senate, expressed support for McDonnell’s plan.
Additional details on Gov. Bob McDonnell’s transportation plan are available at Virginia.gov.
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Sam Hamilton
9:41 am on Wednesday, January 9, 2013
What I don't understand about this policy proposal is that it shifts the burden of paying for roads from the people who use them the most to the general population. Granted, we all benefit from a good transportation network even those who don't drive much or don't even own a car. But I would think instead of raising sales taxes and eliminating the gas tax the better thing to do would be to raise the gas and diesel tax and find a way to assess those cars that don't pay much gas tax (because they're hybrid or more fuel efficient). This way, the people who use the roads the most bear most of the burden of paying for them. If we're going to raise taxes to pay for something we need, it might as well come out of the pockets of those who are going to benefit most directly.
Nate McKenzie
10:21 am on Wednesday, January 9, 2013
Mixed emotions on this - most are negative. You're replacing one regressive tax with another regressive tax so from that perspective it's unknown effect. You're raising revenue, which is good in my opinion.
But as Sam says, you're disconnecting transportation costs from their users. I think gas tax is an excellent and simple (easy to implement) approximation of road use. In addition, it incentivizes fuel efficiency and comes closer to a 'truer' price for gasoline use. If the gas tax is "“outdated” because of inflation and better fuel economy" then raise the gas tax and index it to inflation. Also, I disagree with the $100 fee on alternative fuel vehicles (and I don't own one). From my first look, it seems we are not just trying to remove incentives that reward good environmental practice, but also to actively punish them.
Jonathan Krall
11:00 am on Wednesday, January 9, 2013
The people who damage the roads by driving on them should pay for them. And, if the good people of Virginia don't want to pay for roads, then maybe the Governor should stop paving new roads until the people change their minds.
In other words, the Governor and the General Assembly should focus on things that people are willing to pay for, like education.
Kerry Donley
11:49 am on Wednesday, January 9, 2013
Increasing the gas tax makes more sense as users will pay the tax, including out of state travelers. The Virginia gas tax has not been raised since 1986, and had previous adminstrations and legislatures been more responsive we would not be in this sorry state of affiars. Also, McDonnell is proposing a shift of general fund revenue to transportation which will underfund education and public safety funding putting more pressure on localities. Proposal also pins hopes on federal action on internet sales tax which may not get enacted. Give him credit for coming up with a plan but ultimate passage is iffy at best.
Nate McKenzie
12:30 pm on Wednesday, January 9, 2013
Kerry,
I understood that the original floated idea (a couple weeks ago) would have robbed Peter (education and public safety) to pay Paul (transportation). Is that still true with this proposal in the event that the internet sales tax is not passed by Congress? There is revenue in this proposal which wasn't being discussed a couple weeks ago but I'm not sure if the added revenue makes up for the lost gas tax enough to remove the Peter/Paul problem. If we're relying on the internet sales tax to be passed to fund education at planned levels, that's another strike against the proposal.
Nate
RJ
2:37 pm on Wednesday, January 9, 2013
Greater Greater Washington has a nice write up on why this proposal is insanity.
http://greatergreaterwashington.org/post/17305/mcdonnells-insane-transportation-plan-no-gas-tax/
oldtowner
5:45 pm on Wednesday, January 9, 2013
This seems illogical....I think the folks who drive the most, and probably use the most gas, should pay more via a gas tax; it should be increased, not eliminated. Don't see why other folks should pay more for roads (via increased sales tax) than the folks who use them the most....including out-of-state folks.
amy lu
6:12 pm on Wednesday, January 9, 2013
Thanks RJ for pointing to the Greater Greater Washington article since it raises the question of whether the sales taxes would be levied on gasoline sales. Currently gasoline sales are exempt. Under McDonnell's proposal that would not change.
Edmund Lewis
8:00 pm on Wednesday, January 9, 2013
People who drive the most should pay more in taxes via a gas tax? Hmmm. Does this logic also apply to public education or public housing? What is ignored within these comments is the fact that transportation funding pays not only for roads, but also funds the public transportation which uses those roads and funds our public transportation using rails. Bicyclists and pedestrians also use the roads and do not pay for their use through gasoline sales. Owners of vehicles already pay increased taxes through Virginia's personal property tax, state sales tax on the purchase of their vehicle, and local and state vehicle registration/inspection costs. The public roads and rails are open to the entire public and should therefore be funded by the entire public.
RJ
8:49 am on Thursday, January 10, 2013
Almost every transportation project is also funded by Federal dollars, so yes, everyone is paying something for roads. In fact, the gas tax is currently can only fund around 50% of the transportation budgets, the rest is coming from the general fund or bonds; once again everyone is paying.
Jonathan Krall
11:32 am on Thursday, January 10, 2013
Damage to roads scales as the 3rd or 4th power of the weight of the vehicle. Bicycles barely damage anything. Also, this question has been raised numerous times and it is always found that non-drivers are subsidizing drivers. The main reason for this is that roads are paid for from general taxes (local roads from property taxes) in addition to politically-impossible-to-raise gas taxes.
Yong
2:49 pm on Thursday, January 10, 2013
Its so typical for politicians to raise taxes, its an easy solution. Is it too much to ask our elected officials to do their job and make some tough decisions and look at spending cuts. We can't solve our problems by continuing to raise taxes - we need a balance approach to cut and spend
Jonathan Krall
3:28 pm on Thursday, January 10, 2013
Since vehicle miles traveled has been dropping in the USA for the past several years[1], maybe we should close the gap with a cut in new roads, combined with a smaller tax increase (the gas tax hasn't gone up in 20 years and has shrunk in constant dollars because of inflation).
[1] http://www.ssti.us/2012/02/motor-vehicle-travel-demand-continues-long-term-downward-trend-in-2011/