The average fuel economy of new vehicles rose 6% in 2012, and cars are expected to use less and less gas going forward. Isn’t that a good thing?
Well, not if you’re a state hoping to bump up revenues collected on gasoline sales. Less gas sold means less gas taxes collected by states—and therefore, less money the states have to build highways, patch roads, and do all of the other things normally funded by gas taxes.
To increase gas tax revenues, or at least maintain their current levels, one simple solution is to hike gas tax rates. As a New York Times magazine story recently detailed, many economists think higher gas taxes—at least $1.25 per gallon, more than double the current national average—are necessary for a wide range of reasons, including the reduction of traffic and offsetting the environmental impact of driving.
Curiously, in Virginia, Governor Bob McDonnell is suggesting just the opposite as a solution. McDonnell is proposing that Virginia eliminate its gas tax, which is now 17.5¢ per gallon. Since gas tax revenues are bound to decline as drivers buy less fuel, McDonnell suggests that the state drop this tax entirely, while jacking up another tax—one that’s paid by everyone, not just drivers, and that’s never expected to decline. If the proposal passes (it’s quite a long shot), road projects in Virginia would no longer be funded by gas taxes, but by a 0.8% increase in state sales tax, which would rise from 5% to 5.8% (still lower than neighboring Maryland‘s 6% rate).
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The Richmond Times-Dispatch quoted McDonnell’s attempts at explaining the proposed “solution”:
“We have a problem in Virginia and it’s a math problem,” McDonnell said in announcing his proposal. “When you look at what is happening with the primary sources of transportation funding, the fuels tax, that it is on a downward slope.”
Perhaps even more curiously, McDonnell is also suggesting that the owners of alternative-fuel vehicles—who are accustomed to receiving bonuses (rebates, free charging stations, access to special highway lanes) for their green choice of vehicles—should pay a $100 annual fee. And here’s how the governor explained this part of his plan:
“I’m a strong supporter of alternative fuel vehicles, and I’ve directed that we convert the state vehicle fleet to natural gas, but these vehicles generate little federal gas tax revenue and therefore need to contribute their share to fund the roads they use,” McDonnell said.
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The proposal has support in certain circles—like among taxi companies and other businesses that spend a lot out of pocket on fuel costs and would obviously benefit if gas was cheaper. A Washington Post story recently offered their point of view, as well as that of the Virginia Retail Federation, which swore that it has “not found a pushback yet for the increase in the sales tax” among its members. Supporters also argue that the disappearance of the state gas tax may trickle down, so that prices would decrease for all sorts of goods and services priced partially based on the cost of fuel.
Regardless, everyday consumers may not like the idea of paying for services they don’t necessarily use. “There’s no need for people that don’t drive a car to pay higher taxes on consumer goods in order to subsidize those people who do drive cars,” Virginia Sen. J. Chapman Petersen said, according to the Times-Dispatch.
The point here is figuring out how to fund road infrastructure, right? Interestingly enough, surveys show that the majority of drivers actually support higher taxes on gasoline (a theoretical 10¢ increase) so long as the funds raised are used to improve roads. Think about that: How often are the majority of Americans behind the idea of increases taxes on anything?
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Nonetheless, McDonnell wants to eliminate the gas tax and spread the burden of funding road improvements to all consumers, while simultaneously decreasing incentives for drivers to purchase more fuel-efficient and alternative-fuel vehicles and to stay off the roads more, perhaps by using public transportation. But hey, gas would be cheaper!