Governor Bob McDonnell (R-VA) has taken a bold step in working to fund Virginia’s transportation crisis. It is clear that he has an interest in leaving a lasting legacy as a governor who prioritized transportation. Unfortunately, his “Road to the Future” is paved with a number of flawed solutions.
First, the good. The plan, which can be seen here, gets one thing right. It begins to prioritize transportation as a core state expenditure. By changing the share of revenue collected from the sales and use tax that is designated to maintenance costs and the Transportation Trust Fund, McDonnell makes clear that transportation deserves a bigger piece of the budget pie.
“Transportation currently receives 0.5 cent of the SUT, and the governor proposes to phase in this share to 0.75 cent over five years.”
According to McDonnell’s own analysis, this will result in more than $811 million over the next 5 years for transportation out of currently collected revenue.
|Increase Existing SUT commitment from .05% to .75% over 5 years||$49.0||$101.7||$158.4||$219.2||$283.2||$811.5|
Next, the tax cut. The Governor proposes eliminating the state 17.5 cents/gallon tax on gasoline. This is a tax cut of about $3.5 billion tax cut over 5 years.
|Eliminate 17.5 cents/gallon tax on gas||($684.1)||($694)||($703.7)||($708.8)||($713.8)||($3,504.4)|
Now, the bad. Unfortunately, this tax cut is replaced by a 16% increase in the state sales and use tax. The Governor’s plan replaces the current gas tax with a .8 cent increase in the sales and use tax. The net tax increase is outlined in the Governor’s own projections:
|Replace 17.5 /gallon tax on gas with .8% NGF SUT increase||$24.6||$109.3||$131.8||$158.4||$182.9||$607.0|
The higher sales and use tax increase is projected to bring in $4.1 billion in additional revenue over 5 years. Subtract current gas tax revenue projections from the increase in projected SUT revenue and you get a $607 million net tax hike.
Now, more bad. The “Road to the Future” includes a $15 increase in vehicle registration fees. This is a 5-year car tax increase of $547 million.
|$15 Increase in Registration Fees||$109.4||$109.4||$109.4||$109.4||$109.4||$547.0|
Did you recently purchase an alternative fuel vehicle in Virginia? Sorry, says McDonnell. $66.6 million in higher taxes for you.
|$100 Alternative Fuel Vehicle Fee||$10.2||$11.4||$13.0||$15.0||$17.0||$66.6|
Next, the horrible. Republican Governor Bob McDonnell is lobbying the 113th Congress to pass the Market Place Equity Act, the internet sales tax.
Over at Digital Liberty, Katie McAuliffe has an excellent explanation why the flawed federal legislation is a confusing, slippery slope that expands state tax authority and threatens privacy.
Creating competition among states for higher taxes and placing greater burdens on businesses to comply with thousands of new regulations is a huge step in the wrong direction. Passage of this federal legislation would result in over $1.1 billion in higher taxes on Virginia consumers.
|Market Place Equity – Transportation||$175.7||$199.1||$207.0||$214.8||$222.2||$1,018.8|
|Market Place Equity – Local Trans||$23.7||$26.9||$28.0||$29.1||$30.1||$137.8|
In conclusion, the proposed plan is a massive $1.22 billion tax increase. With the inclusion of the federal Market Place Equity Act, Virginia taxes will rise by $2.38 billion over 5 years.
ATR is encouraging legislators to amend the “Road to the Future” so that it is not a net tax increase and pass a plan that shifts a greater share of sales and use tax revenue to transportation costs and projects. If transportation is a priority, it's time to allocate current funds in a way that reflects that.