Cranky About the Car Tax

Call me Mr. Cranky. Sometimes, it seems, nothing pleases me. Take car tax relief, for instance. I don’t agree with anyone on that issue.

The Political Class doesn’t like car tax relief because it diverts too much money from spending on their favorite government programs. Well, that ticks me off because taxpayers do deserve a break! Giving the Political Class more tax money is like giving a crack addict “just one more hit.” If you give politicians the money they want, they lose all pressure to think creatively and spend with discipline. What we need is more creativity, innovation, productivity and discipline in government — not more money.

Take Gov. Mark R. Warner. When the state faced a fiscal crisis, he did a tremendous job of cutting expenses and rationalizing government. As soon as the crisis was over, it was back to business as usual, looking for ways to spend all the money — and more — that came rolling in. The impetus for cost cutting just died.

So, I believe in giving money back to the taxpayers. But the car tax has got to be the most jury-rigged arrangement I can think of to do it. As Ronald Reagan taught Republicans — before they promptly forgot the lessons — taxes affect behavior. If you’re going to cut taxes, cut them in a way that creates incentives for people to behave in socially useful ways.

What does the car tax relief do? It reduces the cost of car ownership. In other words, it encourages people to spend more money on newer, more expensive cars. That’s just dandy if you’re an automobile dealer, but the problem in our society today is not a lack of conspicuous consumption. If you cut taxes, cut income taxes or business taxes. Reward people for working harder or doing business in Virginia — not for buying bigger cars!

When you reward people for working harder and doing business in Virginia, you increase economic activity. Greater economic activity offsets at least a portion of the revenue you lost through the tax increase. Duh!

Instead of expending political capital on nickle-and-dime tweaks to the car tax — and raising the cap on car tax relief by $50 million is nickle-and-dime in the context of a $35 billio-a-year state budget — the House of Delegates needs to think boldly about tax reform. How about applying the concept of flat taxes to Virginia’s income tax? Eliminate the billion dollars or more in income-tax loopholes identified by the Warner administration, and use that money to reduce the top rate! Or repeal the BPOL tax and stimulate entrepreneurship. Think creatively, darn it!


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13 responses to “Cranky About the Car Tax”

  1. James Atticus Bowden Avatar
    James Atticus Bowden

    Eliminate personal property tax on principle. The Commonwealth does not have a compelling reason to tax private property every year.

    Send a portion of the income tax directly to the localities.

    Cut state spending to make up the difference (was $800m but has grown).

  2. Ray Hyde Avatar
    Ray Hyde

    That is a really lousy argument, Jim. If I get a tax break, any tax break, where is the nexus that says I’m more likely to spend that money on a newer more expensive car, as opposed to a bottle of booze or a box of pampers?

    If you want to reward people for working harder, then I agree with JAB. Don’t tax them for keeping what they have earned and paid taxes on. Don’t tax them for keeping what they have bought and paid taxes on with tax paid dollars. Tax income and tax sales, and let people keep what they own: that is how you reward them for being industrious and thrifty. And anyway, didn’t they increase the sales tax on cars?

    Last year I built a barn with lumber I sawed and milled from trees I cut. The only thing I bought was the nails, and tin for the roof. My reward? My spendable income is permanently reduced by the amount the barn is taxed, an amount thast may double every few years.

    If you want to encourage people to be industrious aznd thrifty, stop taxing property.

    It isn’t even clear that encouraging people not to drive is socially useful. The main reasons people drive is to go and earn or spend money. What was that you said about recovering your losses through greater revenue?

    Finally, you claim to be the free market guy. If Joe Sixpack gets some tax relief, he should be able to spend it any way he pleases. If the government wants him to drive less, then the government should pay for it wants, same as anybody else, get by making the cities more livable and less expensive.

    That, of course, will require huge tax increases.

  3. Anonymous Avatar
    Anonymous

    I think it’s a great argument, Jim. I mentioned here before that I thought that the car tax was one of the fairest around. I lived in Alexandria and had a cheap little car that I drove for over 15 years. Took public transportation into DC to work even when I worked 7 days a week. When it finally died, I realized that the 53,000 miles that I drove in 15+ years didn’t necessitate another car. My friends drove fancy new cars and paid taxes on same while making fun of my wreck. I laughed all the way to the bank. Thrifty, industrious, AND not adding to pollution and the horror that I-395 has become. I am sure that there are some instances where the car tax didn’t work out – I think Ray Hyde mentioned paying on farm vehicles – but overall you had a lot of control over what you paid.

  4. Ray Hyde Avatar
    Ray Hyde

    If we really want to get away from nickle and dime transactions, then it makes sense to focus our tax collections in as few places as possible, and to make those places as broad as possible. Income and sales taxes meet those goals.

    Previously, I was opposed even to sales taxes, because of the nickle and dime facet and because so many transactions are affected in so many places. Over time I changed my mind because so many people earn money under the table, or illegally. Sales tax is one way to capture some of these ill-gotten gains.

    I think there is a test for what is socially desirable, and that test is how much we are willing to pay to get others to act according to our desires. If we claim that something is socially desirable, and then proceed to implement a policy that merely damages others, then it seems to me that our claim that the policy is socially desirable is suspect.

  5. James Atticus Bowden Avatar
    James Atticus Bowden

    Anon:Taxes should be related to principles in the Social Contract. The fact that you own something is a lousy principle to tax by. If you are worried about using the road and wearing it out or polluting then put tolls up and tax gas – not that I want to do those, but that they fit a principle.

    Ray Hyde made clear what I said in a perfunctory manner. He is being taxed for IMPROVING his property. How wrong that is.

    Property taxes are a cash cow. No principles involved unless they are socialist or class envy.

    The best thing about them was the requirement to stroke the check right before Summer vacation and CHRISTmas. It shoved the tax in the voters faces and they hated it, hate it, will hate it.

  6. Ray Hyde Avatar
    Ray Hyde

    Anon 10:32.

    I’m a cheap little car driver too. I keep them forever and rebuild them a few times to keep the taxes low. What enraged me was that I was frequently assessed much more than the thing was worth, and I think that is why the tax was so unpopular. The assessments were based on NADA sales, which means only the best cars went into the formula. People like you and I who are thrifty got hammered. The fact that people who bought new or fancier cars got hammered worse doesn’t make me feel any better.

    If you get taxed to earn money, and you get taxed to spend money, you shouldn’t have to get taxed for owning what you bought. Certainly you shouldn’t get taxed unfairly, no matter how small the tax is.

    The tax on my barn is small, but the government did nothing to earn that additional tax. The purpose for building the barn is so the farm can make more money, on which I will gladly pay tax. Instead, the government makes it less likely that I will be able to spend money or effort on the farm again, and thus reduces their own future sources of income. Because of the taxes, the barn will probably never pay for itself, and I might have been better off just to throw an ugly old tarp over the hay. My neighbors would love that.

    Most people who decide they need a car will pay the tax. There is no evidence that a higher tax will have very much effect on that decision. They might buy a less expensive or older car, but they probably won’t move their house to avoid $500 in tax. There is no evidence that a lower tax would encourage someone that didn’t need it to buy a car, either.

  7. Anonymous Avatar
    Anonymous

    This is Anon 10:33

    I think that a lot of the bad reaction that people had to the car tax or, for that matter, property taxes in general, is that they have to write a fairly sizable check for them and that sort of comes as a shock. When I worked in DC, I knew a number of folks who stopped at Starbucks twice a day to pick up their favorite coffee fix – extra large. Nuttin’ wrong widdat, it’s not illegal or even immoral; but I’ll bet if Starbucks let ’em sign for their brews and waited until December 31 to collect for all of that coffee, the folks who bought 2 expensive coffees everyday would be stunned at how much being stylish was costing them.

    I lived in NOVA for over 35 years before I retired to SW VA, specifically Blacksburg. I can drive for 10 minutes and be in real country, including farms and dirt roads with ruts 6 inches deep at mud time. Lots of farmers – full and part time – wonderful people. About the last 12 years I was in Alexandria, I had given up my car altogether as I noted above. Toward the end of that time I saw NOVA awash with HUGE SUV’s, trucks, vans etc. Sometimes there were 2 or 3 per family (that is, 3 or 4 people). Believe it or not, taking population into consideration or on a per capita basis, I saw more SUV’s & trucks in NOVA, where there was no real need for them, than I see down here, where they could more or less be justified.

    Now there ARE times when I see lots of SUV’s in B’burg: when the Hokies play a home football game and all those NOVA alumni come “home” and, of course, graduations, when they come to see their kids walk across the stage.

    I guess what I’m saying is that I’m sympathetic to your concerns as a farmer, Ray. Heck, I’ve done volunteer work for the B’burg Farmers Market, including collecting prizes for the great tomato contest of 2005 (EX: Largest tomato – 2 pounds, grown in Floyd County). But I can’t get too upset with NOVA folks’ getting taxed for conspicuous consumption of flashy vehicles.

  8. Ray Hyde Avatar
    Ray Hyde

    Jaded JD has a nice graph that shows Virginia Taxes plotted against Gross State Product.

  9. criticallythinking Avatar
    criticallythinking

    There’s talk about eliminating the decal fee in PW. Some oppose the elimination arguing that it is better to have a bunch of different small funding sources so one change in economy can’t throw the whole budget off. I don’t agree, although I think they could get rid of the DECAL and keep the fee (less the savings from not doing decals).

    I loved the Barn story, it perfectly illustrates why we should not tax property, at least not based on value. A house’s cost to the county is not related to its value, in fact it may be inversely related to value. To tax people more because they make their houses nicer is absurd. The value of the house is only by happenstance related to the ability of it’s owner to afford the taxes.

    The car tax has the same problem. Worse, it encourages people to keep older cars, which get worse gas mileage, pollute more, and are more dangerous to drive, and break down more causing a loss of productivity and traffic backups on our roads.

    The car tax probably doesn’t discourage car ownership, so eliminating it wouldn’t increase the miles people drive.

    We should simply increase the income tax to cover the loss of the car tax, and feed a portion of the income tax back on a per-capita basis to the counties.

    And we should cut a billion in spending while we are at it. PWCounty is bragging about government spending only increasing a couple of percent faster than inflation,and the state is worse. If this keeps up, eventually the state and local government will require more money than the citizens earn.

  10. Ray Hyde Avatar
    Ray Hyde

    “…eventually the state and local government will require more money than the citizens earn.”

    Taxes always increase until the revolution. Isn’t that what Bacon’s Rebellion is about?

    But the graph over at Jaded JD telss a different story.

    Clearly citizens have to fight to keep things in check, to spend rationally and well, and especially to improve the efficiency of government. JAB claims that we get back only 23 cents of every dollar we send to government. If NOVA only gets back 30 cents on a dollar to begin with, then they are seeing only 7 cents on a dollar! And they provide nearly half the sales tax.

    I don’t think it is quite that bad, but surely whatever it is can be improved. One thing that galls me is the apparently consistent inability of government officials to make a decision. Especially one based on imperfect knowledge. I’m one who constantly calls for better metrics, but until you have them, you need to work with what you have.

    Maybe there is some kind of professional development course on decision making; but government would no doubt find a way to turn that into a boondoggle, too.

  11. Anonymous Avatar
    Anonymous

    In the last thirty years the value of my real estate has increased 600% and my income has increased 400%. I now pay over $10,000 per year in real estate tax.

    Soon I will be retired. This can’t continue.

  12. Anonymous Avatar
    Anonymous

    Anon 10:33 again – I really gotta get a blogger account.

    Right on both counts, Ray. I planned very carefully and lived for over 32 years in a 1-BR apt in one or another apartment complex on the west end of Alexandria. One of my criteria for housing was great public transportation and close-by (ie walkable) shopping for day to day things like groceries. Long hours on job; no kids.

    I think that it is obscene what property taxes are doing to middle and lower income retirees in NOVA; and I certainly don’t think it’s a good thing for people to be forced out of their lifelong homes. Saw a lot of that in the Parker-Gray area of Alexandria where black families gave up houses in the family for years because they couldn’t afford to pay the taxes as the neighborhood gentrified. Still I suggest living elsewhere where it’s more affordable is something folks no longer dependent on NOVA for a job ought to consider. I’m sure glad I did.

  13. Ray Hyde Avatar
    Ray Hyde

    We hear a lot about quality of life, but what does it mean? In the end, it means you can look back without regrets, I guess. I’m quite happy with a library card and a stack of books. In the right time and place I might have lived as you did. But I like hammers and saws and scaffolds and paint and projects that don’t fit in one bedroom.

    I grew up in a place where some families lived in the same homes for hundreds of years. The church I now attend is filled with people who have generations in the cemetary outside. Place is dependent on more than grid streets or cul-de-sacs, walkable promenades or wide open spaces.

    Place requires culture, and culture requires stability. So, how did I come to be here, a place so different than my home? Or is it that I am here because it is so much like home: small towns seem to have certain characters and certain caricatures in common. I’m sure you knew many “individuals” in West End Alexandria, too. It is sad to see that lost, maybe we traded stability for “Right to
    Work”.

    I guess in some ways I got gentrified out of my home, maybe I could have stayed there, but I didn’t see how at the time. Later I lived close enough to Alexandria to watch it happen there, and before long it will happen to me again. The good thing about being gentrified is that you can “speculate” and make a lot of money.

    Pretty soon a lot of baby boomers are going to want to cash in their freedom chips and go some place “more affordable”. What are we going to do when Florida and Phoenix and Costa Rica fill up?

    Maybe Charlottesville. Yeah, let’s create a craze to make Charlottesville the next retirement mecca. Good health care facilities and plenty of babes to watch.

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