Category Archives: Taxes

Flotsam and Jetsam from the Week Past

Here are some of the stories I couldn’t get to last week:

Kevin Spacey in "House of Cards." If there's one business nastier than politics it's Hollywood.

Kevin Spacey in “House of Cards.” If there’s one business nastier than politics it’s Hollywood.

Filmfalm. It’s not often that I find myself agreeing with Sara Okos with the Commonwealth Institute, but we see eye-to-eye on the subject of motion picture tax credits. The House of Delegates has passed a bill doubling the tax credit to up to $25 million over the biennial budget at a time when many other states are scaling back. Writes Okos in the Half Sheet:

The most rigorous studies show that motion picture tax credits aren’t effective generators of economic development. The jobs that they create are temporary and low-paying. In the movie biz, most highly paid, highly skilled workers are brought in from other regions, while low-skilled workers are the ones hired locally and take home only a fraction of the total wages associated with a project. Because the film industry is highly mobile, those jobs don’t last after a movie wraps.

House Republicans have lost their way. Seriously, how can they claim to be fiscal conservatives when they pull stunts like this? What’s going on? Are they hoping to pick up production of the Netflix political series “House of Cards,” which is threatening to pull up its sets and decamp to another state unless Maryland agrees to more tax credits? Yuck. If there’s a business dirtier than inside-Washington politics, it’s this one.

What’s happening in Charlottesville? Charlottesville appears in the list of 10 fastest-shrinking metropolitan economies in the United States, with a loss of 2.2% in gross metropolitan production, according to 24/7 Wall Street, the second straight year of decline. Yet unemployment remains at reasonably robust 4.6%. This makes no sense. I can’t think of anything that would account for such a shrinkage. Is this a statistical anomaly? Does anyone have an explanation?

tysonsLiving the High Life in Tysons. We’ll soon find out how much market demand there is for living in Tysons. Developers have begun marketing new luxury high-rises being built as part of the mammoth make-over of the congested, car-centric business district into a walkable mixed-use community. One-room studios are being listed for between $3 and $4 per square foot — the same price as in the established Clarendon neighborhood of Arlington County, considerably more expensive than in Reston but cheaper than in Washington, D.C. The tricky part is this: Renters would be paying walkable-neighborhood prices… without the walkable neighborhoods. They might get a walkable city block, but it will take years for the rest of the walkable urban fabric to fill in around them. The Washington Post has the story here.

loudoun_gravel_roadsPreserving gravel roads. Here’s an interesting turn-around. Typically, Virginians living on dirt and gravel roads have begged and pleaded with the Virginia Department of Transportation to pave them. Now comes a bill, HB 416, that would require VDOT to keep 300 miles of unpaved road in western Loudoun County as they are rather than paving, straightening or widening them. It appears that the residents of rural Loudoun like their windy dirt roads, some of which pre-date the Civil War, and want to keep them that way. Greater Greater Washington has the story here.

How to Get Trucks to Pay their Fair Share of Road Maintenance

Hampton Roads weigh station. Photo credit: HamptonRoads.com.

Hampton Roads weigh station. Photo credit: HamptonRoads.com.

by James A. Bacon

Once we embrace the logic of basing road-maintenance expenditures on Return on Investment analysis, as I discussed yesterday, we should address a related matter: the fact that some vehicles cause far more damage to roads than others. In an equitable and economically efficient world, vehicles would pay for damage in proportion to which they cause it. As a practical matter, that would mean getting trucks to pay a greater share of taxes than they do now.

The wear and tear on a road caused by a vehicle increases geometrically in proportion to the vehicle’s weight per axle. Thus, virtually all pavement damage is caused by trucks and buses, contend Clifford Winston and Fred Mannering in a recent article in the Economics of Transportation journal. The rear axle of a typical 13-ton trailer causes more than 1,000 times the damage of a car. (Governing magazine quotes road planners as saying that a heavy truck causes close to 10,000 times the damage of a car.) Heavy trucks likewise cause disproportionate stress to bridges.

Trucks in Virginia, like other states, are taxed far more heavily than cars. But they still are under-taxed in proportion to the damage they cause and the maintenance liabilities they generate. Getting trucks to pay their fair share is difficult because an influential trucking lobby blocks any redistribution of the tax load. But there may be a way to package tax reform to make it palatable to the trucking industry: by making it a win-win proposition.

States do a couple of things that truckers don’t like: (1) they impose weight caps on trucks and tractor-trailers, which limits how much they cargo they can carry, and (2) they require trucks on highways to stop and get weighed, which costs them time.

But what if…. What if Virginia required trucks to pay 100% of the road damage they cause while (1) eliminating weight caps and (2) no longer requiring them to stop at weighing stations, measuring them instead with high-speed “weigh in motion” technologies as they travel down the highway? The first measure would provide trucks more flexibility. They could increase weights (and pay a proportionately higher charge) when the cargo justified it. They could deploy trucks that spread the weight over more axles. They could adjust their routes to minimize travel over bridges for which they incurred high charges. The second measure would save them time in a situation where time was money.

One would think it should be possible to build a coalition of interests — railroads, shippers, motorists — to counter the trucking industry’s lobbying clout. Then make the tax increase easier to swallow by providing tangible inducements such as weigh in motion. It should be possible to budge this powerful lobby into going along.

Update: A correspondent reminds me that the General Assembly tackled the issue of overweight trucks in the 2012 session. It may be settled politically in the sense that the legislature has no intention of returning to it any time soon, but the problem has not been solved. A December 2011 study that laid out a new fee schedule for overweight loads estimated that it would raise an extra $4.7 million a year — a drop in the bucket.

Let Them Use Chamber Pots

A Chesterfield County classroom.

A Chesterfield County classroom.

Chesterfield county, famous for voting for bond issues but refusing to approve a mechanism to fund their debt, is rapidly becoming a model of governmental dysfunction.  This bastion of conservatism demonstrates what happens when years of anti-government rhetoric and “good old boy” ethics meet the financial realities of governing.

Several weeks ago, the Richmond Times-Dispatch ran an article documenting the stresses in the Chesterfield Public School system.  Stories of large classes, underfunded programs, rising health and pension costs and no increase in pay for five academic years seem, according to the article, to have put the system on the verge of collapse.

School maintenance and expansion are funded, in part, by a tax on developers called a “proffers.”  This levy pays for schools, sewer and roads. They are paid by the developer and passed on to the eventual buyer of the house.

The recent school budget in Chesterfield currently shows about a 1% operating deficit. Members of the Board are tasked with funding the system using all traditional means. According to press reports, one of the members of the board is one Carrie Coyner. In addition to being a member of the Board,  Ms. Coyner is representing a developer seeking a reduction of a “proffer” to build 400 or more homes in the county. This would increase the county debt and thus reduce funding for the school system.

What is the definition of “conflict of interest”?  It is as if on the next time the Yankees play Boston at Fenway, Derek Jeter is allowed the call balls and strikes. On the other side of the river, things really are different.

– Les Schreiber

Hmmm. Tastes Like Chicken.

eating_crowTime to eat crow. The tax assessment numbers are in for Henrico County, and they are disappointing indeed — up only 2.8% from last year. (I blogged about Chesterfield’s assessment results yesterday.) I had suggested that soaring home sales prices would give a much bigger boost to the tax base, obviating the need for a 4% meals tax. The number was slightly higher than the 2% percent that the county administration had budgeted, but not enough to close the county’s perceived long-term budget gap.

So, kudos to the county administration for getting it right.

This still doesn’t change the bigger-picture narrative I advanced about Henrico County — the county cannot continue doing business as usual. I do not buy the false alternative that local governments have no choice but to raise taxes or cut services. The county manager took a small step in the right direction recently when he proposed disposing of excess property, a move that would simultaneously lower operating expenses, increase the tax base and strengthen the county’s balance sheet. But that’s just a start.

Henrico County needs to get serious about exploiting the potential of the “smart city” revolution criss-crossing the globe. The county needs to move more aggressively to urbanize selected parts of the county to bolster its tax base with higher-yielding, lower-costing development. And it needs to take greater advantage of the burgeoning revolution in online learning. In the final analysis, the meals tax is an $18 million blip on a billion-dollar budget. It’s a temporary patch. It’s also over and done. Let’s start thinking about longer-term reforms.

– JAB

MBUFs and Value Capture asTransportation Financing Tools

focus_area_oneby James A. Bacon

A common challenge for every state is finding the funds to expand the transportation system to serve a growing population and economy. Virginia endured a grueling debate last year over former Governor Bob McDonnell’s proposal to shift much of the burden to the state sales tax. Other states have made a similar choice.

The problem with taxing retail sales to pay for transportation is that it demolishes the user-pays principle, with the consequence that there is no longer an objective criteria for allocating funds. Predictably, the pot of transportation dollars is now up for grabs, as evidenced by a slew of bills in the General Assembly that would have the effect, directly or indirectly, of limiting the flow of dollars to mass transit. Greater Greater Washington, which has a round-up of the bills here, framed the issue this way: “Was last year’s transportation bill a bait and switch?” 

Anti-transit proponents can rightfully claim that mass transit is uneconomical and totally dependent upon subsidies. Of course, transit advocates can advance the identical argument about roads. Virginia’s system is so riddled with subsidies and cross-subsidies that virtually nothing pays its own way and every funding decision becomes a political slugfest because no mechanism exists (a) to prevent transfers of wealth from one constituency to another or (b) to ensure that transportation dollars are funneled to projects that offer the greatest economic payoff. 

That’s why Smart Growth America’s new publication, “The Innovative DOT: a handbook of policy and practice,” is so welcome. In the first of eight focus areas, the handbook explores new mechanisms for funding transportation projects. If we can figure out how to make different transportation modes pay their own way in Virginia, we can dispense with a lot of politics and focus on putting money to work where it will do the most good.

While the handbook points to several states that have tapped sales tax revenue to fund transportation, I find two other alternatives preferable. One is Value Capture. The other is the Vehicle Miles Traveled tax.

Value capture. The premise behind Value Capture is that transportation improvements create economic value and represent a windfall gain to property owners lucky (or shrewd) enough to own land in the right location. Those landowners should help pay for the value created.

New transportation improvements such as transit stations, roadway networks, or interchanges add value to nearby properties, but while anyone can use those new facilities, all users do not share equally in the added value they produce. …Value capture offers and equitable means of recouping value from the private sector in proportion to the benefit received from transportation improvements. Applied correctly, value capture is narrow and targeted. It is generally not only palatable to, but often supported by, private property owners because they receive a direct and tangible benefit from their investment.

Value capture techniques take many forms, any one of which may be the most advantageous for a particular situation. Generally speaking, the one that makes the most sense to me is the Transportation Benefit District (or Special Assessment District). Property owners benefiting from a transportation improvement create a special tax district to generate revenue to pay off the bonds that finance construction of the asset. Property owners willingly accept the tax surcharge because they know the new transportation asset will create more than enough value in the form of higher rents and leases to pay for it. If property owners balk because insufficient value is created, that’s a good sign that the project is economically unjustifiable and should not be built in the first place.

Mileage Based User Fee (MBUF). One can debate around and around who should pay for new construction, but a bedrock principle of transportation financing is that drivers should pay to maintain roads and highways in direct proportion to which they cause wear and tear on roads and highways. With virtually all cars equipped with GPS positioning devices, there is no technological barrier to capturing how many miles a car travels in between trips to the gas station and collecting the tax at the pump.

The Virginia Department of Transportation has allocated $1.86 billion in its Fiscal 2014 budget for the maintenance of all roads, highways and bridges in Virginia. A tax equivalent to 2.6 cents per mile would cover that entire cost plus the six percent-of-revenue that SGA says it would cost to administer the tax. Two-and-a-half cents is a trivial percentage of the 56 cents per mile that the Internal Revenue Service estimates it costs to operate a vehicle. Moreover, adopting an MBUF would allow the state to eliminate the $600 million it anticipates collecting from motor fuels taxes, $639 million from the retail sales tax, $233 million from motor vehicle licenses and $131 million from insurance premiums, with more than $250 million left over to cut the motor vehicle sales tax by one third. Continue reading

Big Brother? I Think He’s On My Contact List.

gps_trackingby James A. Bacon

Not long ago there was a fair amount of buzz over the idea of a Vehicle Miles Traveled (VMT) tax as a way to finance the maintenance and construction of roads and highways in the United States. That buzz, it seems, has largely died down. Technologically speaking, it would be a no-brainer to attach a GPS device to a car and track how many miles it drove over the course of a year. But any time someone broaches the idea, foes say it would never work — Americans would never tolerate the government monitoring their movements in order to calculate how many miles they drive. End of conversation.

A new poll calls that conventional wisdom into question. Life360, a company that sells an inexpensive service enabling subscribers to track the whereabouts of friends and family, recently surveyed 1,169 teens and adults who own smart phones. Sixty percent reported that they use at least one location-sharing app on their phone, and 36% say they use two or more.

Life360 concluded that location-sharing is driven by safety. Parents like to know where their children are. Sometimes, children even want to know where their parents are. Admittedly, that’s a far cry from sharing your location with the government for the purpose of taxing you. But it shows that people are willing to trade a modicum of privacy for something else of value.

Many other apps offer inducements for people to share their GPS data. Subscribers logging into Waze yield their location in exchange for access to maps showing real-time traffic flow based on the movement of all other subscribers. Subscribers to FourSquare share comments about restaurants, nightclubs, parks and other urban amenities — and can detect the whereabouts of friends who are nearby. Glympse, an Android app, locates the location of friends and shows their movement on a map. Marco Polo provides another twist on the same concept.

One might respond that those are small start-up companies, and they’re only sharing GPS location with friends. But General Motors’ OnStar unit tracks subscribers’ car locations to provide turn-by-turn navigation, quick crash-response service and stolen car assistance. Three years ago the company forecast the number of subscribers to reach 7.9 million by 2017. Meanwhile, the service has inspired numerous competitors, including Ford, Toyota, Volkswagen, State Farm and WatchDog.

The fact is that millions of Americans share their GPS-derived locational data already, and no one gets bent out of shape about it. There is one important difference, I’ll concede, between these private services and a VMT tax. People voluntarily share their GPS data with Life360, Waze, OnStar and the rest. A tax is compulsory.

While civil libertarians may grumble, Americans are getting acclimated to the idea of sharing GPS data. If they are willing to make their location public to their network of friends and acquaintances, and if they relinquish the data to giant auto manufacturers, it’s a relatively small step to allow the Department of Motor Vehicles to access the same information for the purpose of determining how many miles they drive in a year.

A VMT tax is an elegant solution to funding the maintenance of roads and highways. Motorists pay in direct proportion to which they use the roads, add to wear and tear on asphalt and incur public expense. A VMT does not shift the fiscal burden to pedestrians, cyclists, bus riders and little old ladies who drive 1,000 miles a year going back and forth to the beauty parlor. It puts responsibility squarely where it belongs, on people who drive the most. To my mind, that is a compelling public purpose that justifies the minimal loss of privacy associated with GPS sharing.

Virginia, it’s time to think seriously about instituting a VMT tax and moving toward a true user-pays system for funding Virginia’s roads, bridges and highways.

Educating Children, Cutting Spending

scholarshipsThe Education Improvement Scholarship Tax Credit made it possible for 275 low-income students to receive private-school scholarships this year while saving the Commonwealth of Virginia almost $745,000. So concludes the Thomas Jefferson Institute for Public Policy in a new published policy brief.

The 2013-2014 school year marks the first year that students received private-school scholarships under the tax credit. The provision provides a 65% state tax credit to donors contributing to eligible foundations awarding scholarships to low-income public school students. Foundations must use at least 90% of the contributions for actual scholarships, and the size of the scholarships is capped at the amount the state would have contributed to the student’s public school education in their school division of residence. Here are the numbers:

Students awarded scholarships: 275
Average size of scholarship: $2,456 per child
Total scholarship dollars awarded: $675,000
Amount donated: $751,000
Cost of tax credit to the state: $488,000
Educational savings to the state: $1,233,000
Total savings to the state: $745,000

A provision of the law requires donors to wait a year after making the donation to take the tax credit. Bills introduced to the General Assembly this year would allow donors to claim the credit the same year.

– JAB

Journalism’s Death Is Greatly Exaggerated

rachel_maddowBy Peter Galuszka

“Investigative reporting, R.I.P. In-depth reporting is dead. If not dead, it’s comatose. Reeling from declining revenue and eroding profit margins, print media enterprises continue to lay off staff and shrink column inches.”

Err, maybe not. James A. Bacon Jr., meet Rachel Maddow.

The quote comes from advertised “sponsorships” in which an outside entity can help fund reporting and writing on this blog. It’s a morphed form of traditional journalism and there’s nothing wrong with it, provided the funding source is made clear.

But what might be jumping the gun is the sweeping characterization that in-depth reporting is dead. That is precisely the point of Maddow’s monthly column in The Washington Post.

She notes that it was local traffic reporters and others who broke the story about Chris Christie’s finagling with toll booths to punish a political opponent. She shows evidence of other aggressive reporting in Connecticut and in South Carolina, where an intrepid reporter got up early one morning, drive 200 miles to the Atlanta airport and caught then disappeared Gov. Mark Sanford disembarking from an overseas flight to see his Latin American mistress when he had claimed he was hiking the Appalachian Trail.

Closer to home, it was the Post, which has seen more than 400 newsrooms layoffs over the past years, that broke GiftGate, the worst political scandal in Virginia in recent memory. The rest of the state press popped good stories, including the Richmond Times-Dispatch that has been somewhat reinvigorated despite nearly 10 years of corporate cheerleading and limp coverage under publisher Tom Silvestri. The departure of the disastrous former editor Glenn Proctor, Silvestri’s brainchild, helped a lot as did the sale of the paper by dysfunctional Media General to Warren Buffett.

To be sure, there are sad departures. The Hook, a Charlottesville alternative, did a great job reporting the forced and temporary ouster of University of Virginia President Teresa Sullivan, but it has folded.

Funding, indeed, remains a huge problem, even at Bacon’s Rebellion where we all write pretty much for free. One solution, Maddow notes, happened in a tiny Arkansas town that found it was located over a decaying ExxonMobil fuel pipeline. The community raised funds to help hire more reporters to break through the news.

She suggests: “Whatever your partisan affiliation, or lack thereof, subscribe to your local paper today. It’s an act of civic virtue.”

Hear! Hear!

Virginia’s Fiscal Condition: Average

Source: Mercatus Center, George Mason University

Source: Mercatus Center, George Mason University

Virginians persist in the belief that the commonwealth is an exceptionally well managed state with lower-than-average taxes, better-than-average services and rock-solid finances, as exemplified by its AAA bond rating. But there’s more to a state’s fiscal health than its ability to repay bonds. Sarah Arnett with the Mercatus Center rates the fiscal condition of the 50 states and finds Virginia right smack in the middle of the pack, in 25th place.

The overall ranking is a composite of four specific indices based on 2012 Comprehensive Annual Financial Report data: cash solvency (states with  more cash on hand score better), budget solvency (ratio of revenue to expenses), long-run solvency (the ability to meet long-term obligations such as pension benefits and infrastructure maintenance), and service-level solvency (reflecting the ability to provide citizens with an adequate level of services).

Read the details in “State Fiscal Condition: Ranking the 50 States.”

Update: Tim Wise provides more in-depth analysis of the numbers over on the Growls blog

A Stupid Tax Break Gets Even Stupider

Peeling back the stinky onion of the tax code: Enough to make you cry.

Peeling back the stinky onion of the tax code: Enough to make you cry.

A portion of the federal commuter tax benefit will expire January 1, which upsets a number of people on the grounds that the change hoses transit riders and benefits drivers. As someone who qualifies for no benefit at all because I work at home, my reaction to the partial wind-down of this special-interest benefit is, “Stop your blubbering. Get over it.” But there are multiple layers of stupidity at work here, which goes a long way to explaining in microcosm why country is such a mess, so the story warrants some elaboration.

The first layer of stupidity is the existence of a commuter tax benefit of any kind. With the federal government still running an annual budget deficit of “only” half a trillion dollars, Congress needs to stop handing out tax incentives like trick-or-treat candy. The tax break allows employees to devote up to $245 per month of their pre-tax income to commuting costs, including transit passes, van pool expenses and parking, and up to $20 per month for bicycles. The tax expenditure, by my back-of-the-envelope calculation, could cost a couple billion dollars a year in tax revenue.

Peeling back the onion of stupidity, another issue arises. If Congress’ intent is to help the working stiff by reducing the tax burden, there is an obvious alternative — lower overall tax rates. Why the compunction to subsidize commuting? The measure does not benefit all Americans, just those who rack up big commuting expenses. Conversely, it discriminates against workers who engage in the socially beneficial alternatives of walking to work or working at home. 

Delving deeper into the stinky onion of tax policy, we encounter the matter that has inflamed the environmentalists.  A quirk in the latest iteration of the benefit, courtesy of that legislative train wreck known as the 2009 federal stimulus package, expires the tax benefit for transit riders at the end of every year. This year, it seems that Congress never got around to renewing the subsidy, so the benefit for transit rider drops to a mere $130 a month. Meanwhile, the tax break for parking inches up $5 to to $250 per month.

Why should drivers get a $250 parking subsidy while transit riders eke by with a break only half as large? The discrepancy encourages people to drive to work rather than ride the bus or train, hardly the way to advance the goals of reducing congestion, gasoline consumption, pollution and CO2 emissions. I don’t always agree with the environmentalists, but this time they’ve got a point.

The obvious solution is to eliminate the tax break entirely. Congress has no business privileging cars over buses, or vice versa. In one stroke, the nation could take a step toward both fiscal and environmental sustainability.

– JAB