An “F’ in Econ for Governor Bob

Last night, as I watched the local news report on Governor Bob’s plan for transportation in Virginia, it sounded counter intuitive to me. I passed  it off as an error on the part of the reporter or the fact that I was tired, and had perhaps missed some of the specifics. To my amazement, the Times-Dispatch had the same details: In his legacy year, the Guv wants to solve the thorny transportation issue by doing away with the gas tax and increasing the general sales tax.

The  transportation problem is congestion: too many cars on the road. Are we supposed to believe that by reducing the cost of driving, fewer people will drive? Most elementary economic texts prove that when the price of something drops, consumers will buy more of it. The intellectual foundation runs counter to any economic thesis accepted across the full range of all economic theory.

The good Governor seems amazed that the gasoline tax of 17 1/2 cents enacted in 1986 buys fewer repairs and new roads.  I guess he missed that lecture on inflation.  A visit to the Labor Department’s present value calculator indicates that a tax of 37 cents in current dollars would be necessary to have the same buying power today. We know that the Teapublicans want to turn back the clock, but numbers don’t lie. The inflation rate is a fact, not a political football.

The Governor’s transportation plan is to argue in favor of a 0.8% rise in the General Sales Tax from 5.0% to 5.8%.  The Sales Tax is one of the most regressive  levies, falling disproportionately on the poor.  Of course, what can we expect from a politician who throws free money at the owner on an N.F.L. franchise, while telling all state workers and school teachers to do more with less?

– Les Schreiber

2 Responses to An “F’ in Econ for Governor Bob

  1. As I recall, then Governor Mark Warner tried to get the sales tax increased in NoVA and HR for transportation. I don’t recall any Democrats complaining about such a regressive tax proposal.

  2. The sales tax is regressive but a fixed cents / mile or VMT tax is not?

    Let’s a theoretical wealthy couple makes $450,000 per year. By Obama’s calculus, they are rich. Fine.

    The wealthy couple pays half their salary in various federal, state and local taxes. That leaves $225,000. Their tax adjusted mortgage is $5,000 per month or $60,000 per year. That leaves $165,000. They save $100,000 per year and spend the other $65,000 per year.

    The extra 0.8% sales tax on the $65,000 is $520.

    Now, let consider a couple that makes $50,000 per year. After taxes, rent, etc they spend $7,000 per year on items subject to the sales tax.

    The extra 0.8% sales tax on that $10,000 is $56.

    Both couples drive but one couple pays 9.3X as much for transportation than the other.

    You might say that the 0.8% is regressive because it doesn’t graduate with income level. You’d be only partially right. Since the percentage of disposable income does increase with income level and because disposable income is used to make purchases subject to the sales tax a sales tax is actually progressive.

    In my example, the rich couple made 9X as much as the less wealthy couple but paid 9.3X as much for transportation.

    Fill in your own numbers. As long as you are reasonable, wealthier people spend a higher percentage of their income on items subject to the sales tax than less wealthy people. So, when computed as a percentage of income, the sales tax is progressive. At least, over a relevant range.

    Now consider a VMT –

    My wife and I drive 50,000 miles per year.

    The couple making $50,000 drive 20,000 miles per year.

    If the VMT is $.01 per mile, the wealthy couple pays $500 and the less wealthy couple pays $200.

    Instead of a 9.3:1 ratio, we have a 2.5:1 ratio.

    On a per mile driven basis, the sales tax approach is very progressive.

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