Sometimes, in order to better appreciate our current policy and the options before us for improving it, you've got to get an idea for how much worse things could be. You've got to hear an idea so bad, so backwards and wrongheaded, so utterly devoid of merit, that it can't help but bring people together in united opposition. In the spirit of such bipartisan cooperation/condemnation, Virginia Governor Bob McDonnell has proposed the what is possibly the worst transportation funding plan that you're ever likely to see from a serious politician. Really, it's that bad.
The plan has a several components. First, get rid of the state's 17.5 cent gas tax (the federal tax of 18.4 cents would still be in place, of course). Second, make up for lost gas tax revenue by jacking up the state sales tax by 0.8%, from 5.0 to 5.8. Third, just for funsies, charge drivers of hybrid and electric cars a $100 fee on top of their regular vehicle fees.
Starting from the top: eliminating the gas tax is foolish regardless of what else you intend to do to shore up transportation funding. It's true that fuel tax revenues are declining as vehicle mpg increases and people drive less, and it doesn't help that in most places the taxes aren't indexed to inflation. There are almost certainly better ways to pay for transportation--a vehicle miles traveled (VMT) tax, for example--but this doesn't change the fact that burning gasoline to get around is bad for people and bad for the planet. Anything done to raise additional funds should be in addition to the existing gas taxes.
Independent of the value of raising money with the gas tax, it rightly serves as a mild disincentive to purchasing gasoline. There are other transportation options besides driving a single-occupancy vehicle these days. If people choose to drive, which they are of course free to do, it should be recognized that this is to the detriment of human and environmental health, and that privilege shouldn't cost nothing. Market demand sets the price of gas, government sets the cost of pollution. As far as state fuel taxes go, Virginia already does a worse job of pricing those negative externalities than most states: its gas tax ranks #40 in the country (New York is #1 at 49 cents).
Replacing the gas tax with a sales tax increase is almost as bad as not replacing the revenue at all. Sales taxes are notorious for being one of the most regressive ways of funding government spending. Take Washington as an example, a state that relies more heavily on the sales tax than perhaps any other. In Washington, because there is no income tax and most revenue comes from the sales tax, middle-income, and particularly lower-income people pay a higher share of their income to state and local taxes than the national average, and a much higher percentage of their income than do high earners:
From the Institute on Taxation and Economic Policy.
To be fair, the gas tax is also regressive. It hits poor people harder for exactly the same reasons as the sales tax does. It differs, however, in that people have options for transportation--very few are completely dependent on driving a car (at least not driving by themselves). There are no options when it comes to buying things like clothing, furniture, or kitchen utensils--you just need them, and you'll pay sales tax on them. But perhaps more importantly, those who earn very little are already much more likely to not drive; under McDonnell's plan, a gas tax they didn't need to pay would be replaced by an increase to the sales tax they pay every day. And the money would be used to fund roads that, by and large, they don't ever use. I doubt the governor would admit that his goal is to shift the burden of transportation funding to his lowest-income constituents, but that's the practical effect of this plan.
This would also make driving cheaper at the expense of those who don't drive, or don't drive often. At 17.5 cents, the current state gas tax accounts for about 5% of the cost of gasoline at the pump. Drivers would save this money and be able to spend it elsewhere--like on things that are subject to sales tax. The proposed increase in the gas tax is only 0.8%, however. So where before about 5% of the money drivers spent on gas was going toward transportation funding, now they can take that money and spend it on an extra coffee at Starbucks every week and only 0.8% of that money is going to transportation. This is a blatant shift further away from user fee-funded transportation, but in more ways than are immediately obvious.
Compare this to people who don't drive, who save exactly nothing and pay more on nearly all of their day-to-day purchases. And again, the people who don't drive are already disproportionately lower-income. Those who may have decided to get rid of their car or rely more on public transportation for financial reasons are being punished for that decision, while drivers are encouraged to keep on keepin' on.
Last, and most insane (although least significant overall), is the $100 fee assessed on hybrid and electric vehicles. This has been proposed in many places in response to the fact that these vehicles use the roads but, because they use so much less gasoline, contribute much less to transportation infrastructure funding. (This is also yet another reason to add a VMT tax to our funding mix.) I have reservations about penalizing people for doing right by the environment and their fellow man, but I understand why such fees exist and think they're okay, all things considered. In the case of Virginia, however, there's not supposed to be a gas tax that electric vehicle owners can skip out on--it's just an arbitrary punishment for owning a low-emissions car. This fee doesn't actually serve any purpose.
I've heard that the real reason for this fee is to make up for the federal gas taxes that these Virginians aren't paying much of either, but that makes no sense. For one, the fact that the federal government is failing to collect revenue from hybrid and electric vehicle owners is not something that Virginia or any other state needs to worry about. Let the federal government figure that out, the states get their money either way. You should be happy that you get to keep more of your own money--isn't that what every state wants? And I somehow doubt this $100 per car is going to to be sent to the U.S. Highway Trust Fund in lieu of foregone gas taxes. More likely it'll go straight to the state coffers, which means it's just a sneaky, dishonest way of shaking down electric vehicle owners and hoping they don't notice.
So Virginians, don't support this. Your legislature just recently shot down two transportation funding bills, one a mild sales tax increase (without removing the gas tax) and a much better one indexing the the gas tax to inflation. Neither was enough. Now's your chance to do even better and try out a VMT on a larger scale than the pilots going right now, like the one in Oregon. And while you're at it, stop exempting gasoline from the sales tax. And the rest of you states and governors, the low bar has been set. It can only get better from here. Right?