by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Virginia Gov. Bob McDonnell might have thought it was reasonable to replace his state’s existing gas tax with an increased sales tax. But as John Fund documents for National Review Online readers, the governor’s willingness to open the door to tax increases has had some negative unintended consequences.
McDonnell, who is limited by state law to one term in office, wants to build a legacy in his remaining year as governor. In that light, he last month proposed a $2.4 billion tax increase over five years that would end the state’s 17.5-cents-per-gallon gas tax and replace it with a sales-tax increase and a tax on gasoline at the wholesale level.
Virginia does have some of the nation’s most congested highways, and its gas tax — which isn’t indexed for inflation — hasn’t been raised since 1986. Because of increased fuel efficiency and the growth of hybrid and alternative-fuel vehicles, the gas tax has become a “stagnant revenue source,” McDonnell says. His solution is to shift much of the costs of transportation infrastructure from drivers to shoppers.
Spenders from both parties, however, exploit any proposed tax increase as an opportunity to grow government. McDonnell’s original proposal has become a garish Christmas tree of legislative add-ons. The tax increase has grown by 250 percent, becoming a $6.1 billion behemoth. The gas tax won’t really go away, but will be replaced with a 3.5 percent wholesale tax. If Congress doesn’t approve a law allowing states to collect sales tax from out-of-state Internet retailers, the tax will rise to 5.1 percent in 2015. If the price of gasoline doesn’t rise a penny, the new tax will bring in the same amount of revenue. Meanwhile, sales taxes will jump to 5.3 percent, up from 5 percent, and new regional taxing authorities in Hampton Roads and Northern Virginia could see sales taxes in those regions increase to 6 percent. A host of other tax hikes have been grafted onto the bill. The tax on motor-vehicle sales will go up by a third, a new tax on home sales will be imposed, and there will be a $100 annual fee for drivers of alternative-fuel cars.