When Virginia Governor Bob McDonnell proposed to pay for transportation by replacing the gas tax with a sales tax, many pundits predicted it would never happen. They were only half right. Last Friday, the Virginia Senate passed a bill, already approved by the Assembly, that replaced the retail gas tax with a sales tax plus a wholesale gas tax that is almost as much as the retail tax.
The wholesale gas tax is 3.5 percent, which means that it adjusts with changing oil prices. At current gas prices, it amounts to about 14 cents a gallon, slightly less than the 17.5 cent per gallon retail tax that is being eliminated. When added to the increased sales tax that is dedicated to transportation, the result will be a significant increase in transportation funding.
It is not likely, however, to result in any significant improvements for travelers. Instead, as the Wall Street Journal notes, it is a scam that mainly benefits “unions, real estate developers and the transit lobby.”
The gas tax is a user fee, but it isn’t a very good one. It insures that users pay for roads, but it doesn’t insure that any particular user is paying for the road they are using. Instead, it results in a lot of cross-subsidies: urbanites subsidize ruralites; off-peak travelers subsidize peak travelers; auto drivers subsidize truckers.
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As the Antiplanner has previously written, the gas tax isn’t indexed for inflation; it can’t deal with increasingly fuel-efficient cars; it doesn’t provide adequate funding for cities and counties that must put up $30 billion in general funds for roads each year; and it does nothing to relieve congestion. All of these problems can be fixed by replacing gas taxes with vehicle-mile fees, which among other things would make transportation agencies highly responsive to users.
Instead of providing closer ties between users and transportation providers, the McDonnell plan weakens those ties. Transportation agencies funded mainly out of sales taxes have no reasons to cater to actual transportation users. Instead, they will focus on glitzy projects that may do nothing at all to improve transportation but instead please politically powerful groups such as unions and contractors.
Supporters of the law think that the 3.5 percent tax on wholesale fuel will index for inflation. But fuel prices fluctuate wildly and largely independently from inflation. This means that revenues from this tax will be highly unpredictable. Of course, the Virginia plan does almost nothing to solve the other problems with the gas tax.
The frustrating thing about politics is that every step forward seems to be accompanied by two steps backwards. This year, Virginia’s Republican Governor and Republican legislature decided to skip the step forward and just take the two steps backwards.
But traffic has other causes besides the number of cars on the road. If an accident blocks off a lane of traffic. Road construction, police chase , etc. The thing about a user fee is it’s absolute and only applys to those that are using the system. The thing about a tax………..people cheat. If you think about it, car pooling is cheating, instead of individuals driving, your cramming one car. Transit is sorta cheating as it uses tax money (sometimes derived from the highway fees) to move people and the system operates at a deficit.
The Antiplanner wrote:
it doesn’t provide adequate funding for cities and counties that must put up $30 billion in general funds for roads each year; and it does nothing to relieve congestion
Though in the case of Virginia, most of the counties have little to do with building, maintaining or expanding the highway system, for with two exceptions, all roads in the unincorporated parts of Virginia are in the state system. Even the smallest subdivision streets (except those maintained by homeowners associations and condo associations) in Fairfax County are considered state secondary roads.
The Antiplanner also wrote:
It is not likely, however, to result in any significant improvements for travelers. Instead, as the Wall Street Journal notes, it is a scam that mainly benefits “unions, real estate developers and the transit lobby.”
Though Virginia’s highway infrastructure maintenance has been starved for cash in recent years, thanks in large part to a motor fuel tax that has not increased since the 1980’s. Two recent examples:
Channel 12, Richmond: VDOT steps up highway sign safety inspections
The Virginian-Pilot (Hampton Roads): Quality of pothole-repair work questioned
The Antiplanner has a great argument in pointing out that hybrid and electric cars not only get huge subsidies for purchase, but also then do not pay their share of road maintenance costs. The US tries to manipulate the market by greatly subsidizing the Chevy Volt, which at the same time if it succeeds would undermine the highway and road maintenance system in the country.
You have to give the environmentalists credit. They realized they couldn’t get the gas tax raised directly, so they supported ways to undermine the system which would eventually force raising the gas tax.
Randal’s user tax seems to make a lot of sense, at least from an economic / allocating resources perspective. (And although I think he minimizes the implementation challenges a bit, I do agree that the privacy issue should not be a big deal.)
Question: How would such a system impact expenditures directed toward integrating walking / cycling into the overall transport infrastructure, especially signage and lighting?
I would be totally for a tax based on the miles driven except for the privacy concerns. I don’t see how you get beyond the privacy concerns. You would have to have a system which deletes all its records, and then there would be no way to correct massive errors. Otherwise FOIA requests and divorce court subpoenas would turn the US into the worst kind of police state.
Washington Post op-ed: Va.’s transportation bill is unconstitutional