Virginia governor proposes scrapping gas tax, raising sales tax to fund transportation

By Eric Sundquist

Most discussion of possible solutions to the problem of stagnant gas tax revenues has focused on increasing user fees in some way – e.g., by raising fuel taxes, adding tolls, and/or adding VMT-based fees. The Minnesota Transportation Finance Advisory Committee called for all of these options and several more in its November 30 report.

In Virginia, however, Gov. Bob McDonnell is proposing to do away with the state gasoline tax entirely, while retaining the tax on diesel.

The gas tax would be replaced by raising the sales tax 0.8 cents, diverting a portion of existing sales taxes to transportation, increasing registration fees, and imposing a $100 tax on alternative-fuel vehicles. This combination would provide a net increase in transportation funding, mostly for highways but also for transit, ports, aviation, and intercity rail.

“Transportation is a core function of government. Children can’t get to school; parents waste too much time in traffic; and businesses can’t move their goods without an adequate and efficient transportation system,” McDonnell said in a press release.

“Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail, and the growing cost of major infrastructure projects necessitate enhancing and restructuring the Commonwealth’s transportation program and the way it is funded. We simply cannot continue to do what we have always done and expect this problem to go away.”

At least one taxpayer group, Grover Norquist’s Americans for Tax Reform, criticized the plan as a tax hike. In addition, critics on both the left and right have complained about the policy implications of de-emphasizing user fees in transportation.

Ron Utt, formerly of the conservative Heritage Foundation, cited the problem of out-of-state drivers using roads for free. “Unless they stop and buy a new suit or some lawn furniture or something like that, they will henceforth escape the responsibility of paying for the roads that they use.”

Other commenters cited the problem of inducing demand for travel when costs are subsidized by taxpayers. “The nice thing about a gas tax is that for all it annoys people, it does have environmental and highway congestion benefits. Higher retail sales taxes have all the annoyance but none of the benefits,” wrote Slate correspondent Matthew Yglesias, whose publication elsewhere declared the plan “the dumb idea of the week.”

Though the proposal has mostly drawn criticism, there has been some positive response. The Hampton Roads Chamber of Commerce said the proposal would better fund transportation and allow “everyone to pay their fair share.”

This is a gubernatorial election year in Virginia. McDonnell, a Republican, is term-limited and cannot run.

Eric Sundquist is Managing Director at SSTI.