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Secretive legislators ram tax deal through Assembly; divide Republicans

By   /   February 21, 2013  /   News  /   No Comments

By Kathryn Watson | Watchdog.org Virginia Bureau

TAX HIKE: Virginians are about to get a tax shakeup if the transportation compromise reached behind closed doors by 10 delegates and senators passes both chambers. Pictured is a local gas station in Alexandria. / Photo by Kathryn Watson

ALEXANDRIA — Opposition to a transportation compromise, which Attorney General Ken Cuccinelli calls a “massive tax increase,” continues to mount and pits the Republican Party against itself.

The deal could hike taxes on Virginians by more than $6 billion over the next five years, estimates the Grover-Norquist-led Americans for Tax Reform.

Ten members of a Republican-dominated House and Senate conference reached the deal behind closed doors Wednesday, and it was not fully disclosed to the public until Thursday afternoon,

Republicans are taking sides.

“In these tough economic times, I do not believe Virginia’s middle class families can afford massive tax increases, and I cannot support legislation that would ask the taxpayers to shoulder an even heavier burden than they are already carrying, especially when the government proposes to do so little belt-tightening in other areas of the budget,” Cuccinelli said in a statement released Thursday.

Conference members still hadn’t disclosed the final report as of 5 p.m. Thursday, giving Virginians just hours to comb through the details of the roughly 100 pages of legislation before the bill is up for a vote in the House and Senate by the end of session Saturday.

The proposal eliminates the 17.5-cents-per-gallon gas tax, tacks on a wholesale gasoline tax, ups the sales tax, adds an annual fee on alternative-fuel vehicles and imposes an Internet sales tax, all of which Gov. Bob McDonnell says will generate $200 million a year in new general fund revenues for transportation. But the conference’s legislators haven’t explicitly outlined whether, or how, all the new money will be “lock-boxed” for transportation priorities.

Here’s the gist of the tax changes rolled into the proposed transportation plan:

  • Nixes the 17.5 cents-per-gallon gas tax in exchange for a 3.5 percent wholesale tax on gas, and 6 percent tax on diesel fuel
  • Increases the sales tax from 5 percent to 5.3 percent
  • Includes revenue from an Internet sales tax
  • Gives localities in Hampton Roads and Northern Virginia the ability to exercise their own additional taxes to raise funds for roads up to $175 million and $350 million annually, respectively
  • Adds a $100 annual fee for vehicles that run on alternative fuel, like hybrids
  • Increases the titling tax on car sales from 3 percent to 4.3 percent
The agreement depends largely on Internet sales tax revenue that Virginia would receive if what is known as the Marketplace Fairness Act passes in Congress. Under the deal, 57 percent of Internet sales tax revenue, or nearly $200 million a year, would be diverted to transportation in Virginia.
But if Congress fails to pass the Internet tax bill, the wholesale gasoline tax will jump to 5.1 percent, instead of 3.5 percent.

The compromise plan, praised by Gov. Bob McDonnell as an “innovative tax reform bill,” differs greatly from the governor’s original proposal to eliminate the gas tax in exchange for increasing the sales tax from 5 percent to 5.8 percent.

But Quentin Kidd, chair of the Department of Government and director of the Wason Center for Public Policy at Christopher Newport University in Newport News, told Watchdog.org that McDonnell’s bill opened the gates for other Republican leaders to support tax increases.

“In some ways, the governor’s transportation proposal — which was introduced three days before General Assembly convened — broke a logjam on Republican side,” Kidd said. “… It shook up GOP caucus, and opened the door for other Republicans to say we need to raise taxes.”

Perhaps unsurprisingly, Norquist was among the first to disparage the new deal.

“Governor Bob McDonnell’s proposed transportation fix started as a $2.4 billion tax increase,” Norquist said in a statement. “As the House and Senate conferees debate the final language, the size of the tax hike has evidently increased by 250 percent, to nearly $6.1 billion in new and higher taxes once fully implemented over five years.”

Lee Schalk, state government affairs manager for the National Taxpayers Union, said the General Assembly compromise took McDonnell’s plan from “bad to worse.”

The proposal should result in an interesting Republican showdown over the next two days.

“We all want a comprehensive solution to address our transportation needs, but in an attempt to cobble together enough new tax revenue to satisfy the demands of Senate Democrats, this has become a Frankenstein’s monster for Virginia taxpayers,” Delegate Ben Cline, a Republican from Rockbridge who co-chairs the Conservative Caucus, said in a statement.

“It is a significant tax increase on Virginia families and businesses,” Cline told Watchdog.org. “During these tight economic times, the one-two punch of the sequester and the tax increases in this bill would severely hurt our economic recovery.”

Susan Stimpson, a Republican candidate for lieutenant governor, was equally unimpressed.

“Republicans control Richmond,” she said. “Tax cuts? Nope. Spending cuts? Nope. Conservative solutions? Of course not. Just like Washington, when you hear the word ‘compromise’ coming out of Richmond, it never means working together to cut taxes and spending. It always means spend more and tax more — no hard choices involved.”

But Republicans and right-leaning taxpayer groups aren’t the only ones disparaging the compromise.

“We’re going to be unfairly taxed if those tolls aren’t abated,” Sen. Kenny Alexander, a Norfolk Democrat who said the region will be disproportionately harmed without some form of toll mitigation, told the Virginian-Pilot.

Bob Chase, president of the Northern Virginia Transportation Alliance, an advocacy group for better roads for businesses and individual residents, said the plan isn’t perfect.

“This is not something where you’re going to achieve perfection,” Chase told Watchdog.org. “But having said that, it produces real money to build real projects and to make real improvements and real progress in Virginia, and that’s a good thing.”

Email Kathryn at [email protected]