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Transportation-funding plan going down the wrong path

Op-Ed by Dave Shreve

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The Virginia Organizing Project and its Tax Reform Committee commend Gov. Tim Kaine for his recent efforts to publicize and push for expanded investment in the state’s transportation network. There is little doubt that Virginia faces an ongoing road-maintenance funding deficit, that there is ample need for public spending on innovations beyond automobiles and asphalt, and that there must also be significant roadway improvements undertaken throughout the Commonwealth.

We also applaud the governor’s contention that higher gasoline taxes not be included, for, as he has explained it at several town-hall meetings in recent weeks, this would “hit the hardest those who have already taken the hardest hits” at the hands of our “stagflationary” national economy. Yes, the gas tax is simple, and it appears to be a logical choice for roadway funding, but it is also one of the most regressive choices. As a percentage of income – the only sound way to assess tax equity (and on one critical level, tax soundness as well) – gasoline taxes take the most from those who have the least. First adopted by all states in the 1910s and 1920s when only 30 to 40 percent of American families owned automobiles, the gasoline tax was something of a luxury tax that quickly became a much more regressive user fee. Moreover, when Virginia adopted its first gasoline tax, a highest-in-the-nation three cents in 1923, no state had yet to adopt a sales tax, and only 11 had individual or corporate income taxes. Sounder alternatives, in other words, had yet to be established or tested very effectively.

Out of VOP’s decade-long study of the state’s tax system, we contend that no public official – including Gov. Kaine – has put forth a transportation-funding proposal that adheres to sound public-finance principles, including the critical concern for equity reflected in the governor’s rejection of new gasoline taxes. Asking localities to shoulder the full responsibility ignores ongoing state funding deficits and encourages the fragmentation of what ought to be a state system, but also compels transportation funding at a place where it is certain to be regressively financed. Relying on sales-tax increases at any level is to rely upon the most regressive of the three major tax vehicles employed by the Commonwealth and its municipal governments. User fees, including tolls and higher vehicle-registration levies, are even more regressive choices, if also seductively less prominent or visible. Financing any public investment in this fashion may well serve to plug short-term deficits, but it will also force the state to rely upon taxes that grow less slowly than the economy, that dampen economic activity by depressing the consumer demand of those who spend virtually all that they earn, and that will most assuredly force taxpayers to address recurring funding shortfalls.

The Virginia Organizing Project has proposed as an alternative a two-part transportation funding plan. First, we would raise new revenue by imposing a small income-tax surcharge. A 5 percent surcharge (not a 5 percent rate increase, but a 5 percent charge added to existing tax liabilities) would raise approximately $450 million. We recommend using up to $400 million of this amount to finance ongoing maintenance deficits, with the balance dedicated to interest payments on newly issued revenue or general-obligation bonds in the amount of $600 million. The proceeds from these bonds should be sufficient to finance the new transportation investments for Northern Virginia, Hampton Roads and throughout the Commonwealth. Such an approach would also finance these investments as they should be financed – on the basis of ability to pay – and it would rely on the state’s sterling credit where it should be counted upon – to finance relatively long-lived state assets.

As we see it, there is no compelling reason not to finance this or any other investment on this kind of a moderately progressive footing. Often expressed concerns that transportation needs not compete for the same general funds as education and health care assumes, illogically, that all revenues aren’t paid out of personal or corporate income. The critical question ought to be not which categories of spending fall under which dedicated tax vehicle, but whether or not any new investments are financed in an equitable and efficient manner. As we have witnessed many times before, the prospective pinching of one priority to pay for another occurs only when we rely upon regressive taxation.

We urge Gov. Kaine and all interested parties to consider our more progressive and sustainable proposal.