Virginia Governor Bob McDonnell wants to make tax reform a top priority during his upcoming (and final) year as Governor, according to the Associated Press (AP). But while Virginia’s tax code is no doubt in need of reform, it’s hard to tell from the AP article what kind of change Virginians can realistically expect.
Virginia currently foregoes some $12.5 billion in tax revenue every year as a result of special breaks buried in the state tax code—almost as much as the $14.3 billion in annual revenues the Commonwealth takes in. McDonnell said, “I think it’s time to take a look at all those tax preferences, both in income and sales, and see if there is not some way … we can save some money and put it into transportation.”
While such a development would be a positive one, McDonnell contradicts himself when he says that raising revenue is out of the question, and that the tax reform he has in mind might even reduce revenue overall. Given that commitment, Virginians might expect the condition of their ailing transportation system to improve, but at a cost to other state services.
Moreover, there’s reason to be skeptical about how committed McDonnell really is to broadening the tax base. While he’s right to point out that services like car repairs and pedicures should be subject to the state sales tax, his actual track record is not inspiring. Just two months ago, for example, McDonnell signed into law an expansion of a wasteful corporate tax giveaway that narrowed the tax base, despite very good reasons to doubt its effectiveness.
On transportation funding, too, McDonnell’s track record conflicts with his talk of tax reform. He has consistently refused to support tying—or “indexing”—the state’s stagnant gas tax rate to inflation, but now he says that “there may be a way to do that in the overall context of tax reform.”
That’s hardly a ringing endorsement of the idea, but at least it’s a start. The Institute on Taxation and Economic Policy (ITEP) recently found that only Alaska has gone longer than Virginia without raising its gas tax. And if Virginia lawmakers had indexed the state gas tax to construction costs the last time the tax was raised, annual revenues would be some $578 million higher.
But indexing by itself is not enough to fix the state’s legendary transportation problems. Indexing helps prevent future construction cost increases from eating into gas tax revenue, but it doesn’t address the cost increases that have already occurred. According to ITEP, Virginia’s gas tax would have to immediately rise by 14.5 cents just to offset the last two and a half decades of transportation cost growth.
But even if McDonnell believed the state’s gas tax needs to be raised and indexed, his opposition to raising any new revenue overall is almost guaranteed make his reform agenda bad for the state. That’s because every dollar in new revenue McDonnell might generate for transportation would have to be offset with a dollar in tax cuts elsewhere in the budget—presumably from a tax that funds education, human services, public safety, and other core government functions. The AP story says McDonnell sees a reformed tax code as his own legacy, but what about the legacy he leaves the Commonwealth?
Photo of Rand Paul via Gage Skidmore Creative Commons Attribution License 2.0