Thoughts on the New Commonwealth Institute Study

Now, the Institute is out with a new study on the impact that various alternatives for funding Virginia's transportation infrastructure might have on "low- and moderate-income Virginians."  The study is called, "The Road Less Taken: Creating Fairer Taxes, As Well As Better Highways." Its two main theses are: 1) "The taxes targeted for increases in the House and Senate plans - including the gas tax, titling tax and sales tax - are regressive;" and 2) "If the Commonwealth chooses these particular revenue options, it should also pursue corresponding relief measures."  To alleviate the regressivity of new transportation-related taxes, the Commonwealth Institute proposes two possibilities, "Making Virginia's Earned Income Credit refundable" and "Creating a new refundable sales tax credit."

In general, I strongly agree that a major goal of any taxation scheme should be to avoid regressivity and promote progressivity.  This is a fundamental American principle.  As Wes Clark said back in 2003,

...this country was founded on a principle of progressive taxation. In other words, it's not only that the more you make, the more you give, but proportionately more because when you don't have very much money, you need to spend it on the necessities of life.

Actually, the country was not founded on the principle of progressive taxation, but Wes Clark is onto something here.  Certainly, the concept that "the more you earn, the larger the percentage of tax you must pay" has been in effect at the federal level since the 16th amendment was ratified in 1913. That same year, Congress passed the Revenue Act of 1913, which re-imposed a federal income tax that incorporated progressivity into it.

The bottom line is that progressive taxation is the right thing to do, from both a moral and a practical perspective.  Those who can pay more should pay more, certainly in absolute terms but also as a share of their incomes. On transportation, think of it this way: if you make $100 an hour and are stuck in traffic an hour a workday, that's a "cost" of $500 per week, more than $25,000 a year.  In contrast, if you only make $10 an hour, the "cost" of the same traffic delays to you would be $50 per week, or about $2,500 per year - one tenth proportionally compared to the $100 per hour person.

So, the challenge is to raise billions of dollars in revenues for transportation without disproportionately hurting lower- and middle-income people.  Also, ideally, taxes should be related as directly as possible to what the money is going to be spent on.  For instance, if the goal is to raise money for road infrastructure, those who benefit the most -- businesses and individuals -- from that infrastructure should pay the most.  
So, I certainly agree with the Commonwealth Institute on the need to avoid regressivity in any tax proposals for Virginia's transportation system.  How to do this without busting the (already strained) budget?  Here are a few suggestions from a progressive perspective:

1. Dedicate a significant percentage of any money raised for transportation into ensuring high-quality, affordable transportation options for working people. The top priority should be superb mass transit, and NO, that does not mean spending all the money on one shiny, showcase project like Metro to Dulles, it means building a transportation network like the one described here. It also means keeping in mind the cost per passenger of any transportation option; for instance, beyonddc.com estimates that it will cost $55,921 per rider for the Metro "Silver Line" to Dulles Airport versus $6,666 per rider for the proposed Columbia Pike streetcar. More broadly:

If Virginia were to build the truncated Tysons line as we've proposed, ending at Wolf Trap rather than Loudoun County, that would free up enough money to build about 120 miles of streetcar. If we can get ridership on all 120 miles that's similar to what we're getting on Columbia Pike (21,000 riders / 5.2 miles = ~ 4,000 riders per mile = 480,000 riders for 120 miles), that's many times more efficient at producing transit riders than the Silver line. Even if we don't get so much as half Columbia Pike efficiency on other streetcar routes, we'd still be doing far better than the western segment of the Silver line.

These numbers might be off somewhat (in either direction), but this analysis is an excellent example of how we should be thinking about our transportation problems.  Instead, what we often see is pretty much mindless or "insane" in the sense of "doing the same thing over and over again and expecting a different result."  For example, I'd love to see some serious evidence that building more roads doesn't just encourage sprawl and ultimately more traffic.  So far, I've only seen the opposite.

2. Move aggressively towards "smart growth," in which employment opportunities are located as close to housing as possible, thus minimizing the need to travel great distances to get to work.  Tysons Corner, for instance, currently has 4 times as many workers as residents.  That ratio needs to change dramatically -- by turning Tysons Corner into a model, "smart growth," high density "edge city."

3. As far as taxation for transportation is concerned, it seems obvious that gas and vehicle taxes will have to be increased, for a number of reasons.  These include the pressing need to raise revenues for our crumbling infrastructure, to reduce sprawl and other environmental damages associated with burning oil (smog, global warming), and to slash U.S. dependence on oil from countries that don't like us (as Mark Warner said on his kickoff tour, we're currently funding BOTH sides of the "war on terror").  Also, gas and vehicle taxes are directly related to the intended use for the revenues raised -- transportation.  That's just one reason (regressivity is the other) why I would oppose raising general sales taxes in order to pay for transportation.

4. Government should provide incentives for people to buy and operate the most fuel efficient vehicles available.  This can be done in a revenue neutral manner if desired, by taxing "gas guzzlers" differentially from "fuel sippers."  Set a target, let's say 35 miles per gallon, and for every mpg below the target, charge people $100 (or whatever).  For every mpg above the target, rebate $100 (or whatever) to people.  This system can be tweaked very easily to raise revenues, let's say by making it $200 extra tax for every mpg below the target but only $100 less tax for every mpg above the target.  This provides incentive for people to purchase more fuel efficient vehicles, but also raises money for transportation needs.

5. Whatever money is raised should be put overwhelmingly into two areas: a) maintaining EXISTING transportation infrastructure; and b) building high-quality, affordable public transportation options.  As to building new roads, that should only be undertaken after the most rigorous cost-benefit analysis, one that includes the broader and more long term impacts -- sprawl, pollution, etc. -- of doing so.  My guess it that very few new road projects would ever be approved if the cost-benefit, INCLUDING "externalities," was seriously considered and compared to alternatives.

6. Finally, we should look at our tax system more broadly and stop focusing on transportation funding needs as if they exist in a vacuum.  Perhaps it's time, for instance, to switch our emphasis from taxing income and savings to taxing consumption?  Perhaps we should be reexamining why homeowners receive mortgage deductions no matter how much income they make or how expensive their house is?  Perhaps we should be reinstating the estate tax -- the elimination of which is costing Virginia around $140 million per year to benefit a few hundred wealthy families that don't need it (while hurting everyone else, of course).  Here's Chap Petersen on the estate tax:

The Ugly: Here we go again with the estate tax sham. The 2006 bill takes $124M and distributes it to our wealthiest families through a repeal of the tax on multi-million dollar inheritances. Which means that Paris Hilton can inherit $100 million in Virginia and pay no taxes, while suckers like you will pay tax on your earned income. Repealing the Paris Hilton Tax: So Not Hot. Ethically, this is a joke. Is it politically popular? Three years ago I denounced the estate tax repeal as a lobbyist-driven fraud and was re-elected easily in a "race to watch." Mark Warner vetoed the same bill and rose to 75% popularity. Yet dozens of Delegates and Senators continue to pander after a "pro business" rating -- given by the lamentably named Virginia FREE -- by approving a bill so anti-democratic that it's embarrassing to even discuss the details in public. And that's just the Democrats! A firm veto of this boondoggle will help Governor Kaine end his first session on a populist note.

Needless to say, it was wrong to repeal the inheritance tax, as Mark Warner understood when he vetoed Republicans' attempt to do so in 2003. Unfortunately, Gov. Kaine thought differently; signing the estate tax repeal into law in 2005 was, without any doubt, the biggest mistake of his governorship.

In sum, Virginia needs to start thinking about how it raises its revenues from a much broader, more enlightened, more progressive perspective than it's been doing so far.  The Commonwealth Institute study highlights one issue, regressivity, but there are many others -- including what our vision is exactly for Virginia's transportation future.  Right now, it looks way too much like that definition of insanity again, "doing the same thing over and over again and somehow expecting a different result."  It's time to try sanity for a change.

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