I think anyone can appreciate the need for a fresh approach to solving transportation funding in Virginia, but the Governor’s latest proposal makes for simply bad policy. Governor McDonnell’s proposal would ax the current 17.5 cent tax on gasoline, replacing the lost revenue by increasing the state’s sales tax, increasing renewals by $15 per year, and adding a $100 fee for owning a hybrid or electric vehicle (EV).
To understand why this is bad policy, we need to first understand the problem. That problem is finding adequate funding for construction and maintenance of Virginia’s roadways. To date, funding has been generated primarily by taxing gasoline. The rational has been that the more gas purchased, the more miles driven, thus the more demand placed on infrastructure.
That funding model has come under pressure lately due in part to the increase in hybrid and more fuel efficient vehicles, which can travel more miles using less gas. In addition, EVs are now becoming more common which only exacerbates the problem, as EVs pay no tax because they use no gas.
I believe this proposal is detrimental to not just hybrid and EV owners, like myself, but to Virginia’s economy.
Demand for gasoline is highly inelastic while demand for non-essential goods is highly elastic. Changing what goods are taxed will change buying habits, and since non-essential items will now cost more in the state of Virginia, people will either buy in neighboring Maryland, DC, or reduce their discretionary spending all together. Either way, the loser is the business community, workforce, and Virginia economy.
So what’s the right policy?
We should fund road construction and maintenance by using miles driven and vehicle weight as metrics for determining how much each driver pays.
This has many benefits, but the major benefit is its effect on behavior. By charging per mile, you are employing the free market to help drivers find the most fuel and cost efficient way to own a car in Virginia. If people carpool or otherwise limit their mileage, they save cash. And since it’s tied to miles driven, less money will be needed to repair roadways if less miles are logged. Additional benefits would include less pollution and shorter commute as well as renewed incentives to tele-commute, which has many other benefits outside of keeping drivers off the roads.
This idea was taken in part from a proposal here.
And about the $100 fee charged to hybrid and EV owners? Well, between us, the Governor can have my $100. I dare say how much money I save each week on gas since I no longer have to buy it, but looking at it casually, $100 out of my pocket is $100 less to spend at local businesses. Punishing people for owning EVs and hybrids overlooks another benefit of electric powered transport support for home grown energy and American jobs instead of foreign oil and jobs in Mississippi and elsewhere. And the kicker here is that most hybrids and EVs are actually heavier than their fuel efficient gasoline counterparts, thanks to the battery. So under this proposal, we would be taxed at a higher rate than many gas cars, accomplishing Governor McDonnell’s goal.
Let’s create smart policy for Virginia, and if the Governor needs a $100, I’d be happy to oblige, because by the time I finish this blog post, I will have saved at least $100, actually much more.