January 15, 2013

The Commonwealth Institute: The Road Less Taken: Creating Fair Taxes As Well As Better Highways

ITEP Work in Action

In the face of a funding crisis, Governor Kaine and the General Assembly face a difficult choice: Raise taxes and fees or enter into the next biennium with little money for the state’s expansive transportation system. A repeal of abusive driver fees and the Virginia Supreme Court’s ruling that regional components of the Transportation Funding and Reform Act are unconstitutional have sent policymakers back to the drawing board after three years of grappling with difficult transportation funding issues. While the solutions posed by the House and Senate differ on who has taxing authority and whether to address statewide maintenance funding, one common thread in both transportation proposals is a tax increase that places a disproportionate burden on low- and moderate-income Virginians.

The taxes targeted for increases in the House and Senate plans — including the gas tax, titling tax and sales tax — are regressive. As shown in the chart below, Virginia’s lower income households already pay a higher share of their income in these taxes than wealthier households. This means that for families operating under tight budgets, the types of tax increases proposed may result in significant, and disproportionate, costs. For families in the bottom 20 percent of the income distribution, a 10-cent increase in the gas tax results in $32 of additional expense. A 1 penny increase in the sales tax similarly increases the taxes paid by Virginia’s lowest income households by $67. The effect of these tax increases adds up for low-income families — and translates into significantly less money to spend on rent, groceries and other necessities. If the Commonwealth chooses these particular revenue options, it should also pursue corresponding relief measures.

Read the Full Report (PDF)