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Road plan signals more jobs by hiking gas tax, cutting income tax

By   /   February 11, 2013  /   News  /   No Comments

MAINTAINING: A “friendly amendment” to Gov. Bob McDonnell’s multibillion-dollar transportation plan would focus on road maintenance and be “revenue-neutral.”

By Kenric Ward | Watchdog.org Virginia Bureau

FREDERICKSBURG — Raising gasoline taxes and indexing the state income tax would generate more jobs and cost less than Gov. Bob McDonnell’s transportation plan, according to an alternative unveiled Monday morning.

The Thomas Jefferson Institute for Public Policy said its proposal would:

  • Boost private employment by 14,950 jobs, compared with 3,700 under McDonnell’s plan.
  • Raise “real disposable income” by $782 million, versus a decrease of $1.04 billion under the governor’s plan.
  • Increase investment by $80 million, nearly quadrupling the $23 million anticipated by McDonnell’s plan.

Michael Thompson, chairman and president of the nonpartisan institute based in Springfield, said the alternative was offered as a “friendly amendment,” focusing solely on road maintenance.

“The Jefferson Institute urges the General Assembly to consider zeroing in only on the maintenance issue, which is the most important element in our transportation dilemma today,” Thompson said.

“Solving this problem will be a huge legacy for our governor. Then the upcoming gubernatorial campaign can focus on how to build new roads and expand mass transit.”

Unlike McDonnell’s package, which initially contained some $2.4 billion in tax and fee increases, Thompson called his group’s plan revenue-neutral — leaving more money in the private sector to grow the economy.

Boosting the current 17.5-cent-per-gallon gas tax by 20 percent and then indexing the levy to inflation, the Jefferson plan expects to raise an additional $284.5 million per year for road work.

That increase would be offset by indexing the commonwealth’s woefully outdated income tax brackets, for an anticipated tax reduction of $284.5 million annually.

Currently, Virginians earning $17,000 or more pay the state’s top tax rate. Jefferson’s indexed brackets wouldn’t apply the top rate until income reached a minimum of $34,316.

‘REVENUE-NEUTRAL’: Michael Thompson, president of the Thomas Jefferson Institute for Public Policy, lays out a transportation plan that balances a gas-tax hike with an income-tax cut.

By incorporating McDonnell’s proposal to increase the share of the general sales tax dedicated to road maintenance – without heeding his call to raise the sales tax from 5 percent to 5.8 percent – Thompson said the Jefferson plan “will generate at least $567.7 million a year.”

The economic model for the Jefferson plan was developed by the Beacon Hill Institute at Suffolk University in Boston. And it clearly opposes McDonnell’s bid to abolish the gas tax.

“Raising the sales tax, even when offset by eliminating the gas tax, does not impact the economy very well. And disposable income is negatively impacted” the Jefferson Institute said in a statement.

“The gas tax is a direct tax and many economists believe that a tax directly tied to a specific government service is more productive,” Thompson added.

Paul Bachman, Beacon Hill’s director of research, said the plan’s focus on reducing income tax was crucial because “income tax drives behavior more than the sales or gas tax.”

“Clearly, raising the sales tax, even when offset by eliminating the gas tax, does not impact the economy very well. And disposable income is negatively impacted” the Jefferson Institute said in a statement.

Without quantifying legislative support, Thompson said “several legislators really like” the institute’s idea. Delegate Jimmie Massie, R-Richmond, spoke in favor of the proposal at a morning news conference.

“How far this goes is goes, no one knows,” Thompson said.

The House of Delegates has passed McDonnell’s package. But the Senate rejected his plan that would make Virginia the first state to kill its gas tax.

Senators failed to approve any alternative by the General Assembly “crossover” deadline. That made the McDonnell plan the lone vehicle for any transportation legislation, which Thompson’s group now seeks to amend.

Several Senate alternatives included increases in the gas tax, but none of those Republican measures could garner the Democratic support needed to pass.

McDonnell, who hosted a press conference at the Dulles Toll Road Administration Building in McLean on Monday afternoon, was non-committal shortly after the release of the Jefferson Institute proposal. Tucker Martin, the governor’s communications director, told Watchdog:

“We appreciate their thoughts and suggestions, as we do all input we have received on this critical matter.  We look forward to reviewing their proposal.”

Contact Kenric Ward at kenric@watchdogvirginia.org or at (571) 319-9824. @Kenricward


Kenric Ward is a veteran journalist who has worked on three Pulitzer Prize-winning newspapers. A California native, he received a BA from UCLA (Political Science/Phi Beta Kappa) and holds an MBA. He reported and edited at the San Jose Mercury News and the Las Vegas Sun before joining Watchdog.org in 2012 as Virginia Bureau Chief.