Why Does Virginia's Governor Want to Tax Prius Drivers and Shoppers, and Not Gas Guzzlers?

Governor Bob McDonnell has come up with a wrongheaded fix for a serious long-term budget problem.


Virginia Governor Bob McDonnell has a buzzy new plan to fund his state's transportation needs. He wants to stop taxing gasoline and start taxing Prius drivers -- and, more importantly, shoppers in general.

The idea is actually a bit less weird than it sounds. It's also bad policy.

McDonnell's trying to address a serious problem. With each passing year, Americans are driving more fuel-efficient cars and trucks. As a result, gas-tax revenues, which fund the lion's share of state and federal transportation projects, have flatlined or shrunk, even as the cost of building and repairing roads, bridges, highways, and commuter rail has grown. Gas taxes simply won't be able to keep up the cost of maintaining our infrastructure, especially with the Obama administration's stringent new fuel economy standards kicking in.

Virginia could try to forestall those problems by raising its 17.5-cent gas tax, which is one of the lowest in the nation, and hasn't been bumped up since 1986. Instead, McDonnell wants to do away with it entirely. In its place, he would raise the state's sales tax from 5 percent to 5.8 percent and channel more of those revenues to the transportation budget. The state would also continue taxing diesel fuel used by trucks while slapping an annual, $100 fee on drivers who own hybrid and alternative fuel vehicles -- a Prius tax, if you will.

There is a logic to all this. As Virginia's population and economy grow, so too should its sales tax receipts, which might make them a sustainable source of cash for roads and highways. Meanwhile, as a local NBC affiliates reports, McDonnell feels that hybrid drivers should pay up since they spend less on federal gas taxes, but still drive around and muck up Virginia's roads.

Some people will probably object to the idea that urban shoppers who might not have a car or drive much should being taxed in order to pay for the state's roads. But fairness isn't really the issue here. The new sales tax funds will also go to public transport projects, such as the Silver Line Metro extension, and good infrastructure benefits the whole state economically, not just people who drive twenty minutes to and from work. Sales taxes do disproportionately impact the poor and middle class, who spend a bigger hunk of their income than the wealthy on things like food and clothes. But you could make the same argument about gas taxes--especially as more of the poor migrate to the suburbs. 

There are two big problems with this plan, though. First, it doesn't make much sense to tax hybrids and not other high-efficiency vehicles that run on regular gasoline, which will probably account for many of the improvements we'll see in fuel economy in the next several years. But that's a minor quibble. The more substantial problem is that replacing gas taxes with sales taxes will divorce the way Virginia pays for its roads from the amount they are used. That, after all, was the original beauty of the gas tax: The more motorists drove and mucked up the roads, the more they paid to the state for the privilege. 

There are all sorts of other alternatives to the gas tax that would still make drivers pay for their time behind the wheel. More tolls or congestion pricing are two options. Cato's Randal O'Toole, like many other transportation policy folks, is a big big proponent of taxing drivers based on the number of miles they travel in-state, which can be tracked with a GPS device designed to only collect mileage data. That idea might seem intrusive, but it would at least be effective. 

It would also have the added benefit of encouraging people to drive only when they absolutely need to. The governor's current plan, on the other hand, essentially gives motorists a free invitation to drive however much they want, without having to pay for it. Does that sound like a sustainable plan to you? Considering the governor is looking to solve a long-term problem, he should probably be looking for a long-term solution.