Saturday, August 27, 2005

More Fuel for the Fight over Gas Taxes

No surprise - the high price of filling the tank is driving down gas-tax revenues, says this article in the Washington Post. In June and July gas tax receipts for Virginia dropped nearly $1 million compared to the same months a year ago, says the Post.

Speaker Bill Howell seized the moment, telling the Post:

' "I think the fundamental problem is that the gas tax is just becoming less and less reliable," said Virginia House Speaker William J. Howell (R-Stafford), who has called for more private investment in road and rail projects. "Why continue to look at that as the primary way to fund transportation needs? We need to find another way." '

For another view, look at Steve Haner's column, in which he says: ' "When you hear about new, innovative, outside-the-box proposals that will eliminate the need for any straight-up tax increase that is what they are usually boil down to – tolls, debt and old wine in a new skin. Free rides are as hard to find in the real world as free lunches." '


At 7:10 AM, Anonymous Anonymous said...

"Words of wisdom" from a lobbyist who incorrectly projected that economic growth would fail to fill Virginia's coffers. The Virginia Chamber of Commerce, just like its Fairfax County counterpart, is simply a shill for those Virginia businesses that live at the public trough (developers, road contractors, consultants and their ilk) and not real businesses that depend on real growth in personal income. Why should anyone believe Mr. Haner when his previous economic projections turned out to be so wrong?
Virginia needs to address transportation demand. Here we sit in the Internet capital of the world, trying to pave our way into poverty. Let's wire Virginia. It would be much cheaper.
Virginia also needs to prevent development from occurring unless and until the developers pay for all of the public infrastructure to support it. Steve Haner, if we need more roads, let your developer pals build them.

At 7:23 AM, Blogger Steve Haner said...

Gee, who could that be? When did I predict economic growth wouldn't fill Virginia's coffers? What I predicted -- accurately -- was the the majority of the GA wouldn't be able to work up the political will to cut spending on the big ticket items of education and welfare, and wouldn't back off its silly car tax pledge -- making a tax increase inevitable. I have said hither and yon that we raised taxes in 2004 to cover the car tax cut. You could look it up.

And what is false (or especially insightful) about the comment that free rides are as hard to find as free lunches? Anybody disagree? If we follow the path some want, and start selling our major highways to foreign investors who then toll them to make the investment back with a nice profit, do you think that will qualify as a free ride?

The Post's story demonstrates that demand for driving is elastic, and some of our congestion problems might improve slightly as a consequence of higher gas prices (but really I think the traffic will continue, just more Hondas and less Hummers).

At 8:57 AM, Blogger Ray Hyde said...

If the car tax had been administered fairly, it might not have become politically necessary to dispose of it.

We need to stop taxing capital, especially old, run down, depleted, jalopy capital as if it was somehow new money. The only real source of money is based on income and/or spending, everything else is some form of double taxation.

At 9:13 AM, Blogger Steve Haner said...

Ray, I don't disagree, consumption taxes are better (gas tax?) but property taxes in some form are here to stay -- in part because they are more stable.

If you take a billion dollars away from local governments and don't reduce the mandates (or public appetite for services) then they need to replace the revenue. And replacing it with a blank check from the state General Fund was of, shall we be delicate, questionable wisdom. The fact that GF growth fluctuates with the economy was not a surprise (and won't be when it happens again.)

At 10:01 AM, Blogger Ray Hyde said...

Yesterday Chairman Greenspan pointed out that housing prices may not be stable. How stable is the idea that people will be able to continue to pay the taxes on a home that has doubled in value if their income falls due to changes in the economy on account of fuel costs?

If income falls, home prices will fall, assessments will eventually fall, and government income will fall.

What you are saying is that government can insulate itself from its own bad economic forecasting, and its own inability to shed costs by inventing a supposedly stable form of income.

True, people will forgo a lot of other goods before they give up their home, but home security should not be mitigated by the politicians search for job security.

The economy is going to fluctuate and we need a government nimble enough to do the same. An awful lot of political infighting could be resolved by establishing (through referendum or checlists on the back of your tax form) how people actually think their money should be spent. Then, when the economy fluctuates the government administrators would have clear direction on what to cut.

At 12:36 PM, Blogger Steve Haner said...

Ray: Governments insulate themselves from the fluctuations, if they are smart, but having the same kind of diversity in their tax systems smart individuals have in their investments -- property, sales and income, with some excise and fees thrown in. They aren't going to give up one of the major legs of that stool -- the property tax. Which is not to say the rates are not subject to argument.

Governments determine their spending priorities through an admittedly imperfect measure of public opinion, but one we are fond of -- elections. I'm not ready to run this country or this state by insta-polls. I'm not sure that would produce better results. My instincts are admittedly Hamiltonian, not Jeffersonian.

At 1:45 PM, Blogger Ray Hyde said...

I don't think filling out a form on the back of your tax return, indicating how you would like the money to be spent qualifies as an insta-poll. Filling out a tax return is more generally required than voting, and this process would give us a measure of what the people who provide the money want.

Even if using the results of the poll was not obligatory, on the part of government, the published results would make it very hard for politicians to adopt another view without seriously selling the reasons to the public. By itself this would promote campaigning on the issues rather than on personality, which I see as a lousy way to set spending priorities.

At the same time, if we err and underfund some activites, the growing needs in that area will become manifest, higher on people's priorities, and higher in the polls.

I agree that property taxes are not going away, but many juridictions have some means of tying the maximum amount paid to the ability to pay, say for elder people.

If we are going to keep the property tax we ought to at least pu a cap on it at say 25% of personal income, and have that cap apply to all.

I know, people will put their property in their childrens name to avoid taxes etc. but nothing is perfect.

At 3:52 PM, Anonymous Huey Long said...

to anon 8:10 -- when you single out development, the developers are not the ones who ultimately pay those taxes -- everyone pays them through higher home prices and higher costs for consumer goods. I say cut out the middle man and just use broad-based, equitable tax sources to begin with.

At 5:22 PM, Blogger Ray Hyde said...

Go Huey!

"It would be much cheaper (to wire virginia).
Virginia also needs to prevent development from occurring unless and until the developers pay for all of the public infrastructure to support it. "

Well, it would be cheaper to wire Virginia, but as far as I know, you can't get a home-grown tomato delivered that way.

As for the second part:"Virginia also needs to prevent development from occurring unless and until the developers pay for all of the public infrastructure to support it."

This is a wildly popular opinion that is flat wrong according to economists. Huey is right, find a fair tax basis and stick with it.

Here is a list of transportation mitigation measures. The list is measured in rank order of cost to reduce hydrocarbon emissions by one ton, but you can take it as a proxy for the expense of reducing transportation costs by any other measure.
1. Bike and pedestrian paths
2. Employer Trip reduction
3. Major rail transit improvements
4. Park and Ride lots
5. HOV Lanes
6. Congestion Pricing
7. Incident Management
8. Parking Pricing
9. Traffic Signal timing
10. Rideshareing
11. Buy back older cars
12. Emission/VMT/gas tax

the lowest cost policy is a gas tax wich reduces emissions at a cost of $30 ton. (assumes a $0.10 gas tax which takes around $9 billion out of users pockets and puts $8 billion in the government's pocket for a net social cost of $1 billion)

By comparison, the first three items on the list cost from $375,000 per ton down to $350,000 per ton of co2 saved.

The source for this data is a graduate level course in transportation economics.

So if you want to raise money fast and efficiently, at the least cost to citizens, a gas tax is the way to do it.

All of those other ideas are from a thousand to ten thousand times more expensive, and not nearly as effective.

And for the social whiners out there, a gas tax is only a little bit regressive.

It also turns out that road damage is related to the cube of the road weight per axle: trucks and busses cause a thousand times more damage to the roads than cars and they are not taxed anywhere near enough.

Finally, there is a widely accepted empirical relationhip between land use and traffic, but when we carefully analyze the data to account for houshold income, location, and other confounding factors researchers find that there is no suggested linkage that would reduce auto usage at densities american suburbs are actually likely to reach.

I'll say it again:

Nice going, Huey

At 3:57 AM, Blogger Jim Bacon said...

Well what do you know? Virginians respond to rising gasoline prices reduce by driving less and consuming less gasoline. We now have empirical proof of the obvious, which a number of people (I'm not referring to commenters in this thread) have refused to recognize. What are the implications for Virginia transportation policy?

There are two. The first, as the politicians quickly noted, is declining revenue. Virginia will have less money to spend on transportation projects than previously thought. But the other impact is that the "need" for new revenue will diminish. If people change their behavior, driving less, as a result of higher gasoline prices, then we won't need as much money for new transportation projects as previously thought.

So, everybody chill out, OK?

At 8:34 AM, Blogger Ray Hyde said...

Well, Jim, it is another case of letting market forces have their way: any other means of control disrupts the orderly flow of money and desire, and ultimately cost more money than it proposes to save.

Part of the problem with the gas tax is that it is levied per gallon instead of per dollar. If it were levied on the basis of cash flow instead of gas flow, your argument about declining revenue would not hold, and we might at least have enough money to continue maintenance of our existing roads.

At 9:27 AM, Blogger Steve Haner said...

Which briggs us back to the point I've been pressing for three years (and this is a personal opinion) -- we don't need to "raise" the gas tax. We just need to collect in inflation adjusted dollars what the gas tax has been since 1987. Failing to make those adjustments in small increments over the years (which was always the pattern before 1987) has left us with a major political problem. North Carolina solved it with an auto pilot indexing scheme which I'm not ready to embrace.

Yes, the gas tax will continue to shrink as a source, but it will not go away and it remains 1) fair and 2) an inducement for efficiency.

I usually learn something from Ray and the data on alternatives and carbon use was fascinating.

But the ad hominem attack in the intial anonymous posting has me very concerned. The deadliest venom from the Republican right is usually aimed at those in the once-big tent who question the party line, rather than the other party. Someone who would do that will track down and trash my future clients and employers, a risk I cannot take. It's sad, but I may have to sign off Sine Die.

At 10:58 PM, Blogger no display name said...

This comment has been removed by a blog administrator.

At 10:25 PM, Blogger Ray Hyde said...

Just think how much money we could have raised for roads in the last two days if gas taxes were dollar dependent instead of gallon dependent.

At 4:48 PM, Anonymous Anonymous said...

While I have no idea what Mr. Haner said about the state's budget, the original "anonymous" made a good point. One of Virginia's biggest problems is that real estate developers are subsidized three ways from Sunday by taxpayers.
Fairfax County, for example, makes taxpayers fund the Economic Development Authority to lure more businesses to an already overcrowded place so that developers who built office space on speculation won't go belly up. In most areas of the U.S., these marketing costs are paid by chamber of commerce dues or by other private funds.
The 2002 sales tax referendum was designed to funnel most of the funds through a commission that would have been manipulated by a few large landowners who cannot develop their properties without outer beltways.
Virginia needs to pass a law that would require local governments to defer all building until adequate public facilities are in place to support them and also require the developers to build those facilities.
Tim Kaine's proposal for a residential homestead credit is good also. It would shift a large amount of property taxes to the owners of commercial buildings who seem to support more government spending and higher taxes.


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