By Kenric Ward | Watchdog.org Virginia Bureau
RICHMOND — Gov. Bob McDonnell’s new proposal to scrap the state’s gasoline tax and raise the general sales tax is hitting walls of opposition on the left and right.
Democrats assail the hike in the sales tax as a regressive measure that hits lower-income households hardest, and other liberal lawmakers have shown no willingness to give up the gas tax.
State Delegate Mark Keam, D-Vienna, says Virginia needs a “long-term, permanent fund dedicated solely to transportation.”
The conservative Americans for Tax Reform warns that McDonnell’s plan could be a “Trojan Horse” for higher levies without clear priorities.
Unveiled Tuesday afternoon, the governor’s plan would raise the sales tax from 5 percent to 5.8 percent, and dedicate the increase to transportation projects.
The plan is advertised as “revenue neutral,” generating about the same $800 million as the current 17.5-cent-per-gallon gas tax. But because sales tax revenue rises with inflation, the state expects to take in more money each year.
By contrast, the buying power of the gas levy has been halved by inflation over the past 20 years, and its proceeds have been flattened by more fuel-efficient vehicles.
Watchdog.org reported on the possibility of the tax swap last month. The idea has been embraced by House Republicans, and House Speaker William Howell, R-Falmouth, applauded the governor’s proposal.
“This package dedicates $3.1 billion in additional funding over the next five years … and allows us to make the critical investments in our infrastructure that will keep Virginia competitive in a global 21st century economy,” Howell said.
The first $300 million would be earmarked for the Dulles Airport rail Silver Line.
Under McDonnell’s plan, 85 percent of the increased sales tax would go to the Highway Maintenance and Operations Fund and 15 percent will go to the Transportation Trust Fund. Currently, 0.5 cents of the sales tax goes to transportation.
The state says it has a $14 billion budget gap on road construction and maintenance projects, and is falling further behind.
Scott Drenkard, an economist at the Washington, D.C.-based Tax Foundation, said McDonnell could simply index the gas tax to inflation.
“The better tax policy is to link funding of roads with the use of the roads,” Drenkard said.
Eileen Norcross, of George Mason University’s Mercatus Center, called McDonnell’s plan “problematic.” She said jacking up sales taxes to pay for transportation “runs against the principle of transparency and fairness.”
Grover Norquist’s Americans for Tax Reform was even harsher, and challenged Republican leaders in the General Assembly to back away.
“The fact is Virginia does not have a revenue problem; it has a problem prioritizing spending,” said Will Upton of ATR.
Warning that McDonnell’s approach could be a “Trojan Horse for higher taxes,” Upton singled out three Senate Republicans for criticism.
“There is the danger that this plan could become an even worse deal for Virginia taxpayers as it moves through the legislative process,” he said.
“In the past, particularly in the Senate, anti-taxpayer Republicans like Majority Leader Tommy Norment, Sen. Frank Wagner and Sen. John Watkins have worked with Democrats to hijack sound, tax-neutral, pro-growth transportation funding proposals to turn them into tax hikes to fund their pet projects.”
None of the senators responded to ATR’s broadside, and the Senate Republican Caucus did not immediately comment on McDonnell’s proposal. But Watkins, R-Midlothian, has filed a transportation bill — SB 717 — that would replace the existing per-gallon levy with a 5 percent gas tax.
Watkins’ plan would roughly match the current 17.5-cent gas tax, but any increases in fuel prices would yield more revenue. He leaves the sales tax at 5 percent.
Upton doesn’t like either idea. Instead of raising taxes, he called on lawmakers to “prioritize state spending by allocating a greater share of General Fund revenues toward Virginia’s infrastructure needs.”
“By their actions, (lawmakers) have repeatedly told Virginians that transportation funding is their lowest priority,” he said.
“By funding everything else the government does first, leaving no room left for basic transportation needs, these members’ actions reveal what their rhetoric obscures: They will only meet this core function of government after every spending interest in Richmond is served.”
Bob Chase, head of the Northern Virginia Transportation Alliance, agreed with McDonnell’s assessment that “most people will find something to like and dislike” about the transportation-funding plan.
“It’s where the debate ends, not starts, that matters,” Chase said Wednesday, the first day of the 45-day legislative session.
Meantime, critics of McDonnell’s controversial toll-road initiatives were distressed by what the governor did not say Tuesday.
“It is unfortunate that he failed to bring his ill-advised plan to toll Interstate 95 to an end,” said Dale Bennett, president and CEO of the Virginia Trucking Association.
“This is an issue that is far too important to gloss over and we will continue fighting as long as needed to keep I-95 toll-free.”
Contact Kenric Ward at [email protected] or at (571) 319-9824. @Kenricward
— Edited by John Trump at [email protected]