Transportation Funding Car Wreck

Uh, oh, the anti-tax wing of the Republican Party was already getting cold feet about Governor Bob McDonnell’s transportation funding plan yesterday. As Capital News Service quoted, Del. Ben Cline, R-Amherst, as saying in a press conference held by the General Assembly’s Conservative Caucus: “Conservatives want to see taxes kept low. They want to see a plan in place that locks in transportation funding for transportation purposes and not diverted to other uses. And they want to make sure working families aren’t subjected to excessive fee hikes.”

Then came the Wall Street Journal this morning with its lead editorial, punching hard against the McDonnell plan, which would eliminate the gas tax and jack up the sales tax, among other changes, to raise $1.8 billion for transportation construction projects over the next five years.

Applying Economics 101 logic, the Journal wrote:

The [plan] violates the user pays principle of sound tax policy. Drivers and truckers pay a fuel tax to cover the wear and tear they impose on the roads. By contrast, switching to a higher sales tax to finance roads would mean that a Virginia resident who may not even own a car has to pay more for road repairs when he buys a cell phone, computer or Big Mac. Motorists who benefit most from the roads would pay almost nothing directly to use them.

The Tax Foundation explains that funding transportation through a sales tax “makes roads free,” at least in terms of direct payments, and thus will lead to more driving and more gridlock—the opposite of what Mr. McDonnell says he wants to achieve. …

States that need more money for transportation should look toward efficient and innovative tolling technologies, which charge motorists for the time they spend on the roads and can lessen congestion through peak-hour pricing.

Quoting Virginia transportation analyst Ron Utt, the Journal also said higher taxes would misallocate state funds to underused public transportation projects, including $300 million for the Rail-to-Dulles project, a project it blasts for costing up to $40,000 per new round-trip weekday rider.

Undeterred, the McDonnell administration has racked up an impressive list of endorsements from business groups, including road and infrastructure industry associations, chambers of commerce, labor unions and railroad corporations. Find the details in press releases here and here.

One would hardly expect otherwise from construction unions and trade groups — they would be direct beneficiaries of the higher taxes. But the endorsements coming from chambers of commerce is a disappointment and a reminder that it’s one thing to be “pro business” and quite another to be “pro free markets.” Chambers of commerce understandably and legitimately value transportation mobility. However, as long as someone else is paying for roads and transit — in this case, the general public, as opposed to those who use the facilities — Virginia’s chambers are perfectly happy to raise taxes. Just don’t try raising taxes on them!

– JAB

13 Responses to Transportation Funding Car Wreck

  1. I disagree the plan will lead to more driving. People just don;t get in their car and go someplace without a purpose. Usually that purpose involves some kind of commerce, and the person that drives to the store is probably buying a whole lot more than the one that walks.

    That said, what this has shown is that nothing compares withthe gas tax for its simplicity and direct connection to the amount driven and the type of vehicle. Even with vehicles becoming more efficient, all it needs is to be reset to the proper level.

    Even so, the land use complainers have said for years that transportation benefits land owners, so there is another beneficiary that should be tapped for part of the cost. Where I have a problem is that the beneficiaries are assumed to be only for NEW development, and only NEW development contributes to congestion. This, of course is nonsense, but it makes an easy target for demonization.

    • Paying for transportation. The use of service districts to pay for a portion of new transportation facilities, as is being done for Tysons, charges both new and existing property owners. When coupled with proffers, a service district is a fair way of raising revenue from nearby beneficiaries of road and transit improvements.

  2. re: driving for a purpose, no purpose and commerce.

    people drive for different reasons and direct commerce – i.e. the trip itself is necessary for commerce to occur – is not the same as commerce that results from the trip – BECAUSE – not every trip has the same economic benefit and the actual cost of the trip – both direct costs to the person doing the trip and indirect costs to the infrastructure.

    for example, a truck trying to deliver food to a store at 4am is not the same value as a kid taking dads car out to get pizza at the height of rush hour.

    right now – we treat all trips as if each one has the same economic value – the same cost/benefit and they don’t.

    re: new development vs old development.

    in the end new and old residents will pay the cost of transportation infrastructure plus the cost of having inadequate transportation infrastructure.

    The problem is the growth rate. When the growth rate is low, keeping up with the infrastructure is manageable.. everyone just pays a little extra.

    But when growth is fast – the infrastructure falls behind and catching up requires more up front money from both newcomers and existing residents.

    later on – both benefit from the increased infrastructure – paid for by increased taxes on the front end.

    the question is – when growth is fast – should the existing residents have a say in the speed and extent of growth if they are the ones who have to fork over more money?

  3. RTD pointed out the McDonnell “history” on transpo funding.

    1. – let gas and oil drilling royalties pay for it

    2. – then, let the liquor stores pay for it

    3. – Now let the guy who buys a bike and ride the bus pay for it

    The problem with the GOP is that they have wrapped themselves around the axle on even common-sense tax policy.

    If you have a dedicated tax – a user-pays tax – but it is not indexed to inflation – then it’s a tax increase to fix it.

    If this logic sounds stupid – and it is – please admit that this is the modern GOP Liturgy these days.

    These are the same folks who vote in favor of CRs in Sept 2012 then in January 2013 say they have to shut the country down because of increased spending – that they approved themselves back in 9/12.

    the GOP is self-destructing as a viable party to govern.

  4. Doesn’t anyone understand the politics? Due to our federal government’s worship of Wall Street and the Federal Reserve’s money printing bonanza, the price of gas has become and stayed rather unaffordable for many people. Toss in Virginia’s history of building roads to enrich land speculators, and there’s damn little trust for the transportation funding process. Ergo, most people oppose a gas tax increase — I’m talking about the average Virginian. And people also hate when they receive a kick in the ass from the government for doing the right thing. We are buying more fuel efficient vehicles and driving less. So the entitled class cries for higher taxes. That plain POs an awful lot of people.
    Yet, at the same time, we do need more money for transportation — even if just for maintenance. Toss away purity. Cut the price of gas for people; increase the sales tax; and bring in more money for transportation. It fits a whole lot better than telling the peasantry to shut up and pay more at the pump.

    • this is an impressive sentence:

      ” .. increase the sales tax; and bring in more money for transportation. It fits a whole lot better than telling the peasantry to shut up and pay more”

      hmmm

      are you saying that we :

      1. – we all need to pay more?

      2. – including the “peasantry”?

      if 1 and 2 are true then what is your real point ?

    • You are completely correct.

      The Imperial Clown show in Richmond has failed to address the problem for 27 years. Any approach that requires the Clown Show to act on a routine basis is doomed to failure.

      McDonnell’s plan automatically indexes transportation taxes to the level of general prices. In other words, it accounts for inflation without requiring the Clown Show to do anything on an ongoing basis.

      Call it Clown Insurance.

  5. Larry, I was trying to make the point that a large number of Virginians are struggling to pay $50 at least once a week to fill their gas tanks and that, a gas tax increase that would add meaningful revenue to the Transportation Trust Fund would make their struggles even harder. If they are struggling to find the $50, how will they handle the $60 or $70 per fill up?

    The entitled class (many of whom live in NoVA, in real estate development or are beholden to that market) don’t care about the impact on the “peasants.” Neither does the NoVA chattering class. But their local reps do. So a gas tax increase is out of the question for many legislators.

    Yet, it’s clear we need more money for transportation. The Governor is smart enough to understand these factors. So he proposes a solution that does not increase the weekly fill-up pain, and might even reduce it, in exchange for an increase in sales tax. Is the plan perfect? No. Do I have some questions? Yes. But the proposal seems to address the needs of multiple stakeholders. That part I like.

  6. Larry, I was trying to make the point that a large number of Virginians are struggling to pay $50 at least once a week to fill their gas tanks and that, a gas tax increase that would add meaningful revenue to the Transportation Trust Fund would make their struggles even harder. If they are struggling to find the $50, how will they handle the $60 or $70 per fill up?

    The entitled class (many of whom live in NoVA, in real estate development or are beholden to that market) don’t care about the impact on the “peasants.” Neither does the NoVA chattering class. But their local reps do. So a gas tax increase is out of the question for many legislators.

    Yet, it’s clear we need more money for transportation. The Governor is smart enough to understand these factors. So he proposes a solution that does not increase the weekly fill-up pain, and might even reduce it, in exchange for an increase in sales tax. Is the plan perfect? No. Do I have some questions? Yes. But the proposal seems to address the needs of multiple stakeholders. That part I like.

  7. @TMT – but you think the peasant class is unaffected or not affected as much by an equivalent increase in the sales tax?

    here’s part of the problem – take a look at this poll down in Hampton that asks people how they’d like to pay for new infrastructure:

    http://hamptonroads.com/2012/04/even-tax-beats-tolls-regional-poll

    skip down past the top part – and look at how people feel about the gas tax, sales taxes and tolls and tell me what the right approach should be . Not that “none” is a big number…

  8. Here in NC the Republicans (who like in VA also control the governorship and legislature) are floating the idea of eliminating the income tax and replacing it with an increased and broader sales tax. An increase in the tax of 2 or 3 cents a dollar and application to services (such as accounting and legal). The concern of course is that it is regressive, but I wonder if broadening the base to include services takes care of that to some extent.

    • Richard:

      Here are the income tax rates in North Carolina (Virginia is even less progressive):

      If your income range is between $0 and $12,750, your tax rate on every dollar of income earned is 6%.
      If your income range is between $12,751 and $60,000, your tax rate on every dollar of income earned is 7%.
      If your income range is $60,001 and over, your tax rate on every dollar of income earned is 7.75%.

      North Carolina (and Virginia) both have minimum wages of $7.25 per hour or $15,080 per year (with no overtime).

      A full time worker making minimum wage in NC is in the 7% tax bracket. The highest paid person in the state pays three quarters of a percent more.

      The question of whether a sales tax is regressive depends a lot on what is excluded from the sales tax. Your question about including services is a good one. I’d guess that those of above average means buy more in services than those of below average means.

      Here’s a possibility:

      1. Eliminate income taxes in favor of a broader sales tax.
      2. Exempt “store bought” food from the sales tax.
      3. Exempt medical and dental services from the sales tax.
      4. Maintain the present income tax rates for capital gains and dividends.

      That might work.

  9. DJ has more thinking about tax policy than McDonnell.

    Basically we need to modernize our tax policies to better mesh with current commerce realities.

    That could have, should have been McDonnell’s Legacy and given him legitimate credentials to seek to play in the POTUS Game.

    Instead, he’s show himself to be – not innovative – but disruptive – in a way that does not really engage the politics but rather tries to force reactions to his bomb-throwing efforts are reforming transportation funding.

    I realize he wants to move the GA on the issue – one way or the other rather than let them continue to stand unmolested on their clay feet but his ideas are really off-the-way and violate basic good policy – like user-pays.

    I’m quite sure he duly noted the fact that the existing .5% sales tax that goes to tranpo was generating good money and actually was much more immune to the volatile pricing of gasoline combined with inflation and more efficient cars. He just bailed out all together not only the gas tax – but more importantly – the user-pays nexus.

    when you combine this with his Confederate Holiday histrionics, his “ideas” to fund transpo from phantom oil/gas drilling royalties, trans-vaginal probes and funding transpo from liquor sales – you start to see that he just simply does not have things together in any kind of a cogent way.

    At the end of the day – what exactly will be his legitimate legacy?

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