Grouchy about the Grantor’s Tax

Uh, oh, it looks like the Northern Virginia Transportation Authority won’t have as much money as it hoped to finance its transportation improvements. The NVTA, reports Dan Genz with the Washington Examiner, is expected to slash its revenue estimates for seven new taxes and fees because of the region’s economic downturn.

More than half of the $336 million slated for road and rail projects was expected to come from a tax on property sales — the so-called “grantor’s tax.” But home sales have plummeted 50 percent in Fairfax and Loudoun Counties, and have declined elsewhere across the region. NVTA officials, Genz says, expect revenues to drop below $300 million.

Once again, I nod my head in wonder: How did legislators ever devise such an abomination of a transportation scheme? As Hans Bader, a staffer with the Competitive Enterprise Institute, points out:

It’s an odd source of funding for transportation, since a homeowner’s sale of her home contributes nothing to transportation costs. And the tax is anything but fair. It is paid only by Virginians, not the out-of-state motorists who make up much of the traffic on Northern Virginia’s roads.

And, of course, it is a notoriously volatile revenue source that varies with the business cycle. Bader has had more to say about the grantor’s tax in the Examiner, the Times-Dispatch, and, the staff blog of the CEI.

Bacon’s bottom line: A rational system, as opposed to the Rube Goldberg contraption we have, would scrap all miscellaneous revenue sources like the grantor’s tax and raise the gas tax by a like amount. The gas tax is relatively stable, so transportation planners can actually plan. It is also transparent. That means drivers know what they’re paying, and they can adjust their driving behavior if they don’t like paying it. Once we’ve shifted to the gas tax, then we need to start planning for the inevitable demise of the gas tax (when people shift to hybrids, electric cars, fuel cells, etc.) by beginning the spadework for a Vehicle Miles Driven tax.

The transportation-financing system we have now defies all reason, is counter productive, and is something that only politicians could love.

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  1. Larry Gross Avatar
    Larry Gross

    what kind of tread do you have on those sneakers you are wearing.. as you are standing on that slippery slope?


    I suspect this will NOT be one of those threads that ends up with zero comments.

    So.. a question with respect to the PURITY of your bottom line…

    Why should VDOT get money when you buy a pair of pliers or camp fuel?

    Why should WAMTA/VRE get operating funds when you buy shoes or worse …gasoline…

    For that matter.. why should schools get money when you buy an appliance or lottery tickets?

    I agree a tax on real estate seems a bit far fetched to fund roads.. but are you also opposed to a tax on property to fund bus transit?

    How about property taxes to pay for the roads that give you access to your property? After all your property would be a heck of a lot harder to access without public roads… so isn’t a tax on your property if spent on roads – an acceptable tax?

    Just FYI – a gas tax increase did pass the Senate.. but my understanding is that our no-mo-tax folks in the House are once again mouthing the “no way Jose” word..

    but WAIT – if you REALLY want bad news…

    if you read about that proposed tax.. here is what you get – one penny generates about $50 million.

    so .. adding one cent per year for 5 years will get you $250 million (minus inflation losses).. but WAIT – there’s MORE.

    The sponsor of the increase in the gas tax says that it’s NOT for new projects. NOPE, not a single tunnel in HR or another bridge over the Potomac or even inch of US 460.

    No.. he’s saying that the road maintenance fund will go NEGATIVE (that’s budget talk for deep doo doo) if we don’t do it.. and then we’ll have to fund road maintenance out of the general fund.

    The heck you say… what the…

    OH OH.

    five cents increase on the gas tax only staves off a budget crisis on road MAINTENANCE. It won’t generate one red cent of new construction money.

    OH OH.

    I hope folks noticed that the NVTA .. after it already got it’s Transportation Authority and all those NoVa-only taxes…. THEN ALSO lobbies for a state-wide gas tax increase ALSO.

    Talk about kahunas 🙂

    so.. dang it.. I knew this would happen.. before I can finish writing this.. I hear EMR … “fundamental change….. fundamental change… when are you YAHOOS going to get THIS straight?”


  2. Anonymous Avatar

    My questions are simple: How much of the 5-cent gas tax would be raised from Fairfax County? How much of the additional revenues would be spent in Fairfax County?


  3. Larry Gross Avatar
    Larry Gross


    I was at the last MPO meeting for the Fredericksburg Area the other night.

    Their anticipated NEW construction budget for the entire area with 300,000 in population – for the next 5 years if nothing else is done is 30 million per year.

    Next year, they are going to go for their own transportation authority (along with Richmond, Charlottesville and probably others).

    The grantor’s tax might or might not go away but I think you CAN justify the grantor’s tax if you think that the proceeds from it on to maintain and improve the roads that serve residential and commercial road/access needs.

    Perhaps that is what is needed is a more clear breakdown of what the taxes are – and their particular nexus to what revenues will be spent on.

  4. Anonymous Avatar

    Now yuo are finally making some sense. Raise the gas tax, substantially if neceesary, and then start planning for the time when it no longer works as well.

    As for the grantors tax, if they are selling theri home, they may be mnoving out of Virginia, and get no benefit from what they pay. There is a reason for some component of transprtation to be based on real estate value, but his was a dumb idea from the get go. Of course, if you build a new house and sell it, then this is a back door way to add on to the proffers already required.


  5. Anonymous Avatar

    Why should VDOT get money when you buy a pair of pliers or camp fuel?

    Because a reasonable way to tax is to tax based on cash flow. You know the person spending has money to spend, and the tax flow is based on the general economic flow.

    In this regard, the grantors tax is at least related to cash flow, but it is a little backwards. If someone is buying something he has money, but if he is selling it may be because he can no longer afford his home. The grantors tax is kicking someone whne he is down, and taxing him for roads – after he is done using them.

    If we want people to live closer to where they work we should make it cheaper and easier to move, not more expensive.


  6. Not Ed Risse Avatar
    Not Ed Risse

    Good point RH on making it less expensive for people to move and live closer to where they work.

    Transfer taxes on housing reduce mobility of people, just as capital gains taxes reduce the mobility of capital.

    Restrictive residential zoning also increases the cost of housing in urban areas where the jobs are and limits worker mobility.

    The debate over what nexus there should be between who pays a tax and what the tax revenue is used for is a healthy dialogue to have in a Constitutionally limited democratic republic.

    Doesn’t the Constitution prohibit taking private property for public use without just compensation?

    I would submit that any tax that does not bear a reasonable nexus between the payer and the ultimate beneficiary is an unconstitutional taking.

    What is really stupid about the gas tax debate is that there is a global increase in demand and a global shortage of supply. The price keeps going up to bring this into balance.

    With rising prices, higher gas taxes simply substitute for even higher profits for Exxon/Mobil and OPEC.

    The General Assembly should get this over with by raising the gas tax by 50 cents to a dollar per gallon. If the no tax hike conservatives in the House of Delegates need cover, they should reduce some other taxes including the grantors tax by an equivalent amount. Even trading higher gas taxes for lower sales taxes would be beneficial.

    Higher gas prices and more affordable housing next to existing employment concentrations will result in a voluntary change in human settlement patterns.

    Ed Risse will be able to sleep again at night.

  7. Anonymous Avatar

    “Higher gas prices and more affordable housing next to existing employment concentrations will result in a voluntary change in human settlement patterns.”

    That may be the smartest thing ever said on this blog.


  8. Larry Gross Avatar
    Larry Gross

    Oh I could top that one easy.

    Every prospective homebuyer should get a direct subsidy from the government for the difference between what the house they want near to where they work sells for and what the official affordable house price is for that region.

    I’ll bet ya’ll they this is even a smarter idea.. right?

  9. Anonymous Avatar

    Thought I would post this just for kicks…”7 ways to fight property taxes”

    2008 should be VERY interesting in localities all across the Commonwealth


  10. Anonymous Avatar

    The entire 40 cents increase in the grantor’s tax, that is, the so-called “Regional Congestion Relief Fee” taxing authority contained in House Bill 3202, should be repealed:

    1. This tax increase should be repealed because relying on this revenue source means transportation costs are not fairly distributed across all segments of the population, including residents and non-residents who directly and indirectly benefit from the transportation infrastructure. This tax unfairly discriminates against property owners who, upon the sale of property, bear a disproportionate tax burden to fund transportation projects.

    2. This tax increase should be repealed because there is no significant, defensible correlation between the sale of real property and the use of roads, bridges or tunnels. Sections of any regional transportation plan which are designed to generate new revenue should be, in both principle and in effect, user-based, that is, sources of revenue should be limited to transportation related activities and be as closely linked to actual individual use of roads, bridges and tunnels as possible.

    3. This tax increase should be repealed because it represents another layer of taxation on a single asset class which is already subject to overtaxing. Property owners annually suffer overburdening taxation when local governments fail to adequately adjust property tax rates downward in order to offset the impact of rising assessments, when assessments are not adjusted downward to account for declining market values, or when properties are otherwise not accurately assessed. Most property owners will have over-paid taxes throughout their life of property ownership and, as noted above, this segment of the population is now being singled out in HB 3202 for an additional tax burden when the time comes to pass ownership onward.

    Inequitable. Misplaced. Unjust. Period.

    R/ Brian Smith

  11. Larry Gross Avatar
    Larry Gross

    How should local jurisdiction streets and road be paid for?

    In many states – and in all of Virginia’s cities, plus Henrico and Alexandria, it is the responsibility of the locality … although in Va, they get a share of the State Gas tax to do so.

  12. Larry:

    I believe it is Henrico and Arlington, not Henrico and Alexandria.

    However, that quibble aside, I think you have the right idea. Let the localities decide how to raise the tax and let the localities decide how to spend the money. I own a home in Fairfax County so I’ll eventually pay this Grantor’s Tax. And I drive so I’ll pay more for gas when I fill up. Neither of those possibilities bother me. What bothers me is that the money will be siphoned off to pay for road maintenance (and possibly construction) somewhere out of NoVA. I guess the NVTA has the authority to keep the money it raises in NoVA. That’s good. But they don’t have the right to tax gasoline – do they? I thought he gas tax was only at the state level. If true, then we can either have a fair tax that puts the burden on the recipients of the value (i.e. gas tax) without knowing where the money will ultimately be spent of a real estate tax that puts the burden somewhat randomly on land owners but we know the money will be spent in NoVA.

    Do I have the facts right?

    If I do – I’m all for the Grantor’s Tax. Without getting too personal, my home is worth a lot more than my milage. I drive about 8,000 miles per year. At 20 miles per gallon that’s 400 gallons. At five cents a gallon that’s $20 per year. If I keep my present house for another 10 years before selling I suspect the Grantor’s Tax will be more than $200. However, I’d gladly pay more on my real estate if it keeps the greasy fingered merchants of greed in the GA away from the money.

    Sorry to Mr. Smith but I distrust the General Assembly far more than I care about the equity of the taxation method for critical road maintenance and construction.

    The less power the GA has – the better for everybody in NoVA (and, as far as I can see, most places in Virginia).

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