A Lesson in Taxation

Gadabout has taken interest in the battle brewing between Virginia’s citizens and elected state politicians over recently adjusted fees for traffic violations. Virginia ratcheted up the penalties for DUI, Reckless Driving and so forth. A DUI conviction will cost you plenty in Virginia; to the tune of over $2,000 smackers. Reckless driving is over $1,000. The rub isn’t really that the costs are excessive; it is that repeat violators from other states will not be fined at the same level as Virginians. That's the general argument, and Gadabout does not have the complete “fact sheet” at hand, so let’s all just hit the “I believe button” and move on.

Okay, the Commonwealth of Virginia needed to raise revenues (no big surprise), and since it is too politically incorrect to raise “Taxes” they decided to raise “Fees” instead. Raising fees is usually a win-win for politicians on both sides of the aisle, but not this time. Nope, the proletariat is speaking up and the old codgers in Richmond are running for cover and executing damage control plans. Kind of cute, actually.

Let me give you a short lesson in collecting funds for transportation. It all comes down to the efficiency of a tax or fee, and the distribution of the effects of a tax or fee on the rich and poor. That’s why tolls usually don’t work well. They hit the poor at an equal rate as the rich, which is actually disproportionate. Tolls are also inefficient because you have to buy and maintain all the toll equipment, hire a staff, and account for the cash. In the 1990’s, most toll road systems were only 50% efficient; meaning that only 50 cents goes to the treasury for every dollar collected. Today’s automated collection methods have most likely reduced this inefficiency, but I doubt is by a large degree. I don’t have the facts, so I am only guessing here.

The most efficient way to collect revenues is to raise the GAS TAX. Raising this tax is transparent and nearly 100% efficient, but Americans just cannot tolerate any increase in a gas tax. Why? Because we are stupid and driven by emotion, that’s why! We force our elected officials into a corner on gas taxes, and we end up with toll roads and other ridicules fees. We get what we deserve. We are idiots.

Americans consume 384 million gallons of gas per day. A one cent increase in a national gas tax would generate $3.84 million per day, which equates to over $1.4 billion dollars per year. In Virginia the numbers are startling. The per capita consumption in Virginia is 464 gallons per year. With a population of nearly 8 million, Virginia could raise over $35 million per year for every penny increase in the State’s gas tax. The actual figure would most likely be less since many exceptions are in place for state vehicles and public transportation, but we are still looking at some serious cash here. I cross checked the numbers, and they correlated using multiple sources.

Do the math, Virginia. A family of four consumes, on average 1,856 gallons of gas per year. If the state raised the gas tax by just 5 cents, that family would pay an additional $92.80 per year in taxes. A single person would pay just $23.20 more. The result would be $175 million in revenues for the state.

And lastly, remember that the higher the cost of gas, the more we conserve. Americans are being stupid and emotional over taxes and fees. Virginia, you don’t need bread because Richmond will keep you happy eating cake.

Real Estate Tax Rates

Gadabout has been paying attention to tax rate debates here in Virginia Beach, and other border communities of Chesapeake and Norfolk. John Moss, Chairman, Virginia Beach Taxpayer Alliance said, “A few people can make a difference,” at a rally this past Sunday. I think he is right since his efforts made the front page of the local rag. City leaders generally don’t like organized groups of citizens demanding change. Unfortunately, groups like Taxpayer Alliance are usually driven by overly simplistic agendas, such as “reduce the tax rate to 78 cents.” Okay, what do you want to give up? Cities cost a lot of cash to operate!

Let’s look at tax rates. Virginia Beach taxes residential real estate at around $1.00 per hundred dollars of assessed value. If you own $500,000 home, you’ll pay about $5,000 per year in real estate taxes. If the rate were reduced to 78 cents, the tax would be $3,900. Wow, that’s a whopping $1,100 in savings, which is equivalent to about 35 bottles of decent Scotch whisky.

What are we going to give up in return? City Managers have professional staffs that work out yearly budgets with a great deal of oversight. They factor future capital expenditures, growth patterns, infrastructure upgrades, public/private partnerships—all being driven by competing interests. Virginia Beach proudly boasts a great boardwalk—that cost $$$. I am glad it was not axed out of the budget 20 years ago to save a few bucks. The city has a pipeline that supplies water from Lake Gaston that allowed for growth which in turn increased property values. I am glad that city officials didn’t give up on the 25 year dream that became reality to save a few bucks. A new boat ramp was built 5 years ago near my house that has become a showcase of recreation and bay accessibility for boaters and beachgoers. I am thankful that this great facility was built, at great cost, for the enjoyment of all instead of saving a few bucks. A new traffic light was recently installed near my home allowing me to make left turns out of my neighborhood. I am certain that was not cheap! So, what are we going to give up?

My point here is that I believe challenges to city government spending is healthy in the since that the big guys know that citizens are looking over their shoulders, but simply demanding tax cuts on a yearly basis is myopic. We all want good roads, schools, libraries, police and fire forces, and reliable trash pick up. So the argument should not be general and wide in scope, but instead more project/program specific. Are consulting fees excessive? Are specific programs experiencing cost overruns? Are schools top performers? Gadabout believes we need to look at the details instead of marching around with dorky signs demanding across the board reductions.