Tax and Abuse

September 1, 2007
John E. Petersen
By John E. Petersen  |  Columnist
John E. Petersen was GOVERNING's Public Finance columnist. He was a Professor of Public Policy and Finance at the George Mason School of Public Policy.

The average "Joe and Jill Citizen" should not be asked to pay higher taxes no matter how great the need. Instead, those who misbehave or choose bad lifestyles should suffer the tax consequences.

Such stick-it-to-the-sinners is currently being instituted in Virginia, where an abhorrence of raising state taxes has run smack into crippling traffic congestion. The need to raise more funds for transportation led to a new Transportation Act this year, a complicated compromise that goes to extremes in not raising state tax rates. Rather, it ushers in a regime of super-tough charges for "abusive" motorists, the intent being to flog motoring miscreants and have them foot more of the highway bill.

The new abusive-driving fees are awesome. A first-time, drunk-driving fine by the local courthouse will be $300, but there will be a $2,250 fee charged by the state. If you are guilty of reckless driving, the court will fine you around $200, but the state will slap you with an added $1,050 fee. The abusive-driver fees, which cover a long list of traffic offenses, are supposed to raise about $60 million per year.

Local court officials are worried about the public response when these hefty fees are levied. There is the undeniable human cost. A speeding ticket for driving a couple of miles an hour too fast means reckless driving and the added charge can wipe out the savings of a family living on marginal income. Only Virginia residents who have registered their cars in the state are subject to the fees. That's because the abuse fees, which went into effect this July, are not "fines" (for constitutional reasons) but are "surcharges" on residents' car tags.

There is a now widespread "charge-payer" revolt against the abusive-driver charges as details hit the news. A petition calling for repeal has more than 170,000 signatures, and the fees are being legally challenged. Several courts have been asked to evaluate whether the law is constitutional. Many of the legislators who passed the act want a special session to rethink the charges. Meanwhile, the governor and speaker of the Assembly are hanging tough and insist that reconsideration should wait until the legislature meets next January. But this November is an election year, and the legislators' grand accomplishment of passing the Transportation Act is being dragged through the mud by the fiasco over abusive-driver charges.

There are, of course, stories behind the story. Virginia decided to use general fund surpluses (and diversions of general revenues) to meet its share of increased transportation needs. After raising its sales tax by 1/2 cent in 2004, it enjoyed good revenue growth and surpluses. But now, with the housing bust and a slowdown in federal procurement spending, revenues are weakening. The sales tax now relies on a narrower, more volatile base. Moreover, the legislature has been whittling away at other taxes, having repealed the estate tax and reduced the income tax.

Virginia's scheme for financing the Transportation Act is built on a house of cards, there being no strong, permanent revenue source. Moreover, the state will pay for its share of costs over the next eight years by borrowing for 25 years, leaving a debt "legacy" for the next generation. Such maneuvering was needed to satisfy the "no tax" oath-taking legislators who have prevailed in Virginia for the past dozen years.

But the real story lies in overlooking the elephant in the room, which is Virginia's bottom-scraping gas tax. The state's gas tax of 17.5 cents per gallon was last increased in 1986, a generation ago. Ranking 40th nationally, the Virginia tax is 6 cents lower on average than those of neighboring states.

A simple calculation may be insightful. In Virginia, gasoline costs about $3 per gallon. The state tax makes up 17.5 cents of that cost. Were that tax to be one cent higher, the state would get about $60 million in revenue each year. The cost at the pump would increase by 15 cents per 15-gallon fill-up. Filling your tank would cost $40.15 instead of $40. Would motorists even notice the difference, when prices per gallon gyrate by 10 to 20 cents a week? Most would gladly pay the 15 cents as insurance against the prospect of getting slammed with egregious abusive-driver charges. Furthermore, all highway users, including tourists and those with cars registered elsewhere, would pay according to their road usage. That one-cent solution seems rational.

Virginia drivers and taxpayers, however, were never given such a rational choice. They depend on their legislators to act in a reasonable way, but they voted in legislators who took the "no-tax" pledge. Surprise. Tax phobia led to an irrational law. That's the real abuse.