Virginia Governor McDonnell proposed in early January that the General Assembly eliminate the state tax of 17.5 cents per gallon on gasoline, and raise the retail sales tax of 5 percent to 5.8 percent (see the Washington Post, "VA governor proposes replacing gas tax with sales tax increase as part of $3.1B roads plan," Jan. 8, 2013 ).
This additional tax would generate an estimated $607 million over five years, but there would be no change in the tax on diesel fuel.
This is bad policy on many grounds: motor fuel taxes should be raised to: #1, reduce consumption to help reduce global warming; #2, raise revenues for Virginian transportation by a tax that directly corresponds to the amount of fuel used, and #3 use only transportation tax revenue to fund highway and other transport expenses. Diesel taxes on long haul trucks should be substantially raised to reflect the damage these vehicles do to state highways. Higher gas and diesel prices will encourage motorists to carpool, take a bus, or in the case of business, purchase energy efficient delivery and long haul trucks. Finally, the higher retail sales tax only raises about $120 million annually, a paltry sum compared to the billions of dollars needed just to maintain Virginia's existing roads and help urban mass transit systems. In addition, general sales tax revenue funds Virginia's education, social needs and other programs and should not be diverted to the transportation sector.
The current Virginia tax is among the lowest state motor fuel taxes in the U.S.--neighborhing North Carolina's tax is nearly double the Virginia rate. The 17.5 cents per gallon tax was imposed in the mid 1980s when gasoline prices were well under $2 per gallon; in inflation terms, the current Virginia tax should be at least 35 cents per gallon. In 2010, the U.S. Department of Energy (EIA) reported Virginia used 158 million gallons of gasoline generating less than $30 million annually for state revenues.
Another issue is that interstate vehicles would pay no gasoline tax to Virginia. The I-95 and I-81corridors through Virginia are among the busiest highway corridors in the U.S., and since there are no tolls on these corridors, Virginia has no way to recoup its heavy maintenance costs.
A better solution would be to at least triple the state gas tax to 52.5 cents per gallon, and to begin collecting tolls on I-95, I-64 and I-81 corridors so that heavy users of the interstate highways, particularly heavy trucks, pay for their disproportionate damage to the highways. Virginia, like Maryland, Delaware, and New Jersey to our north would be able to extract tax revenue from out of state highway users.
