Governor McDonnell's Bad Idea: Eliminating Virginia's Gas Tax



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Perhaps he was just floating a trial balloon when Governor Bob McDonnell said he was open to increasing Virginia’s gas tax in some way.  If so, it seems to have been a lead balloon because this week he announced his intention to eliminate the gas tax altogether.

But, experts at the Institute on Taxation and Economic Policy have concluded that the Commonwealth’s gas tax actually needs to be raised by 14.5 cents per gallon, right now, just to make up the revenue ground it’s lost having been stagnant for a quarter century.

Calling the gas tax an unviable revenue source (which is true only when lawmakers like McDonnell fail to modernize it!), the Governor proposed replacing it by raising the sales tax (from 5 percent to 5.8 percent) and increasing vehicle registration fees by $15 for most vehicles and $100 for alternative fuel vehicles.

McDonnells’ plan is riddled with flaws. For starters, this “tax swap” shifts the responsibility for paying for roads away from frequent and long-distance drivers (and the owners of heavier passenger vehicles), onto everybody else.  He very literally gives drivers a “free ride” by eliminating the gas tax, likely leading to more congestion, more wear-and-tear on roads, more air pollution and probably even excessive sprawl in the long run.

Oddly, by repealing only the gasoline tax and leaving the diesel tax untouched, his plan also discriminates sharply between motorists depending on the type of fuel they use to fill up.  The aim here is clearly to continue requiring the trucking industry to pay for their use of the roads (since heavy, diesel-powered trucks produce a disproportionate amount of wear-and-tear, as the Governor understands).  But many light trucks, vans and even some passenger vehicles run on diesel as well, and owners of these vehicles will see their sales taxes rise but won’t see any benefit from the gas tax cut.

McDonnell’s plan also does nothing to improve the fairness of Virginia’s taxes from a progressivity perspective, since both gas and sales taxes are regressive.  If the Governor were instead using a progressive income tax increase to fund transportation, at least he could argue that his plan improves Virginia taxes from an ability-to-pay perspective, even if it makes tax fairness much worse from a “benefits principle” (PDF) perspective—that is, a taxing in accordance with the benefits a given taxpayer receives.

Aside from the changes in tax policy, the Governor’s plan includes an expensive bailout of the transportation fund, when that fund could easily be fixed through gas tax reform.  The legislature has rejected such bailouts in the past for the very good reason that the state can’t afford to spend less on education and the other services which will necessarily have to be cut to fund McDonnells’ bailout.

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