Fairness,
I'll be the first to admit, is in the eye of the
beholder. But even the most ardent advocate of
phasing out the car tax would be hard pressed to
argue that, as currently administered, this
particular form of tax relief is equitable. Just
contrast the treatment of Bath and Fairfax counties.
In
Fairfax County, the average per capita income in
2000 was $51,200. Last year, under the current
arrangement for phasing out the car tax, the state
of Virginia reimbursed Fairfax County motorists the
equivalent of $190 per man, woman and child.
In
Bath County, per capita income was half that of
Fairfax, just shy of $24,500. Last year, the state
of Virginia reimbursed the county the equivalent of
$8 per resident. Yes, that's right: eight
measly dollars.
It's
an unavoidable fact of life that the burden of
paying taxes cannot always be distributed fairly. However
a levy is structured,
there's always someone who thinks he's getting a raw
deal. But even by the standards of an imperfect world, few
initiatives have distributed benefits as
arbitrarily and capriciously as Virginia's car tax
relief.
The
gap between rhetoric and reality is breath-taking: A tax initiative touted as
helping average Virginians winds up favoring
affluent professionals driving Beamers and SUVs.
Making matters worse, car tax relief also conflicts
with efforts to mitigate traffic congestion, a hot
button in many parts of the state. Year in, year
out, Virginians put more miles on the road, as
measured by vehicles mile driven, than the previous
year. Yet, rather than encouraging alternatives to
driving -- telecommuting, riding mass transit or
just living closer to where you work -- Virginia's
tax policy reduces the cost of auto
ownership.
When the solons in Richmond undertake the
task of re-thinking the state's tax structure this
year, they should start by throwing car tax
reimbursement on the trash heap -- with the proviso, of course, that they figure out some other means
of giving the money back into taxpayers'
pockets, not steering it to their own pet projects.
Back
in 1998, I agreed with then-Gov.
Jim Gilmore's logic for getting rid of the tax. If he hadn't taken the money away from
the politicians in Richmond, they surely would have
spent it all. Politically, targeting the car-tax was
brilliant. Opinion polls showed that voters loathed
this particular levy more than any other. Given the
incredible pressure to increase state spending to
meet assorted "unmet needs," it was
probably the only tax cut that Gilmore could have
pushed through the General Assembly. Indeed, the
measure proved so popular that even Gilmore's
successor, Gov. Mark R. Warner, vowed to complete
the phase-out as soon as it was fiscally responsible
to do so.
However,
the roll-back of the car tax had an intrinsic
problem: Local governments levied the tax but
state politicians were the ones who wanted to
get rid of it. To put money back in the hands of
taxpayers, legislators resorted to a Rube Goldberg
mechanism: They did not actually eliminate the car
tax -- rather, the state took over from local
taxpayers the burden of paying it.
As
car tax relief is currently structured, localities
reimburse citizens for 70 percent of the personal
property tax payments due on up to $20,000 of
valuation. The state strokes a check to the
localities to cover the reimbursement. The end
result is that the state rewards rewards two groups
of dubious merit: (1) localities that imposed the
highest personal property tax rates on their
citizens, and (2) motorists who buy the biggest and
most expensive cars.
The
following chart shows the total refund paid to each
locality and the per-capita value of that refund. (Skip
past chart.)
Car
Tax Reimbursements
(fiscal
2002; refund in $ millions) |
|
|
Total |
Per |
Rank
|
Locality |
Refund |
Capita |
1 |
Loudoun |
36.6 |
$192 |
2 |
Fairfax
(county) |
188.1 |
191 |
3 |
Falls
Church |
2.0 |
191 |
4 |
Fauquier |
10.7 |
186 |
5 |
Alexandria |
21.3 |
165 |
6 |
Buena
Vista |
1.0 |
162 |
7 |
Albemarle |
12.9 |
161 |
8 |
James
City |
8.1 |
160 |
9 |
Frederick |
9.8 |
159 |
10 |
Clarke |
2.0 |
154 |
11 |
Arlington |
28.6 |
152 |
12 |
Poquoson |
1.7 |
148 |
13 |
Chesterfield |
37.6 |
141 |
14 |
Hanover |
12.3 |
137 |
15 |
Prince
William |
39.7 |
133 |
16 |
Dinwiddie |
3.2 |
131 |
17 |
Fairfax
(city) |
2.9 |
131 |
18 |
Isle
of Wight |
4.0 |
130 |
19 |
Roanoke
(county) |
11.2 |
130 |
20 |
Franklin
(city) |
1.0 |
126 |
21 |
Greene |
2.0 |
125 |
22 |
York |
7.3 |
125 |
23 |
Hampton |
18.2 |
125 |
24 |
Henrico |
32.9 |
124 |
25 |
New
Kent |
1.7 |
124 |
26 |
Warren |
4.0 |
124 |
27 |
Goochland |
2.1 |
121 |
28 |
Chesapeake |
24.7 |
121 |
29 |
Spotsylvania |
11.6 |
119 |
30 |
Southampton |
2.0 |
117 |
31 |
Rappahannock |
0.8 |
116 |
32 |
Suffolk |
7.7 |
116 |
33 |
Manassas
Park |
1.2 |
115 |
34 |
Fluvanna |
2.4 |
112 |
35 |
Rockbridge |
2.3 |
112 |
36 |
Nelson |
1.6 |
107 |
37 |
Powhatan |
2.5 |
106 |
38 |
Virginia
Beach |
45.4 |
106 |
39 |
Alleghany |
1.4 |
105 |
40 |
Mathews |
0.9 |
100 |
41 |
King
and Queen |
0.6 |
99 |
42 |
King
George |
1.7 |
98 |
43 |
Emporia |
0.5 |
98 |
44 |
Botetourt |
3.0 |
97 |
45 |
Essex |
1.0 |
96 |
46 |
Salem |
2.4 |
96 |
47 |
Colonial
Heights |
1.6 |
95 |
48 |
Caroline |
2.1 |
94 |
49 |
Prince
George |
3.2 |
94 |
50 |
Northampton |
1.2 |
93 |
51 |
Manassas |
3.3 |
93 |
52 |
Newport
News |
16.6 |
92 |
53 |
Bedford |
5.5 |
90 |
54 |
Greensville |
1.0 |
90 |
55 |
Cumberland |
0.8 |
89 |
56 |
Fredericksburg |
1.8 |
89 |
57 |
Portsmouth |
8.9 |
89 |
58 |
Charles
City |
0.6 |
88 |
59 |
Waynesboro |
1.8 |
88 |
60 |
Sussex |
1.1 |
87 |
61 |
Orange |
2.3 |
86 |
62 |
Covington |
0.5 |
85 |
63 |
Shenandoah |
3.0 |
84 |
64 |
Roanoke
(city) |
7.9 |
84 |
65 |
Craig |
0.4 |
82 |
66 |
King
William |
1.1 |
82 |
67 |
Lynchburg |
5.3 |
82 |
68 |
Richmond
(city) |
16.0 |
81 |
69 |
Lunenberg |
1.0 |
80 |
70 |
Richmond
(county) |
0.7 |
79 |
71 |
Charlottesville |
3.4 |
78 |
72 |
Rockingham |
5.2 |
76 |
73 |
Danville |
4.6 |
76 |
74 |
Petersburg |
2.5 |
76 |
75 |
Amelia |
0.9 |
75 |
76 |
Giles |
1.3 |
75 |
77 |
Brunswick |
1.3 |
73 |
78 |
Stafford |
7.3 |
73 |
79 |
Lexington |
0.5 |
71 |
80 |
Buckingham |
1.1 |
70 |
81 |
Madison |
0.9 |
70 |
82 |
Northumberland |
0.9 |
70 |
83 |
Accomack |
2.6 |
69 |
84 |
Gloucester |
2.4 |
69 |
85 |
Culpeper |
2.4 |
68 |
86 |
Lancaster |
0.8 |
68 |
87 |
Westmoreland |
1.1 |
68 |
88 |
Appomattox |
0.9 |
67 |
89 |
Winchester |
1.6 |
67 |
90 |
Amherst |
2.1 |
65 |
91 |
Campbell |
3.3 |
65 |
92 |
Norfolk |
15.1 |
65 |
93 |
Middlesex |
0.6 |
63 |
94 |
Pittsylvania |
3.9 |
63 |
95 |
Staunton |
1.5 |
63 |
96 |
Page |
1.4 |
62 |
97 |
Surry |
0.4 |
62 |
98 |
Highland |
0.2 |
61 |
99 |
Prince
Edward |
1.2 |
61 |
100 |
Nottoway |
0.9 |
60 |
101 |
Hopewell |
1.3 |
60 |
102 |
Floyd |
0.8 |
59 |
103 |
Augusta |
3.9 |
58 |
104 |
Williamsburg |
0.7 |
57 |
105 |
Tazewell |
2.5 |
56 |
106 |
Charlotte |
0.7 |
55 |
107 |
Smyth |
1.8 |
55 |
108 |
Wythe |
1.5 |
54 |
109 |
Louisa |
1.4 |
53 |
110 |
Buchanan |
1.3 |
51 |
111 |
Norton |
0.2 |
51 |
112 |
Franklin
(county) |
2.4 |
50 |
113 |
Montgomery |
4.2 |
50 |
114 |
Bland |
0.3 |
47 |
115 |
Mecklenburg |
1.5 |
46 |
116 |
Washington |
2.3 |
45 |
117 |
Bedford |
0.3 |
45 |
118 |
Pulaski |
1.5 |
44 |
119 |
Martinsville |
0.7 |
44 |
120 |
Halifax |
1.6 |
43 |
121 |
Radford |
0.6 |
42 |
122 |
Bristol |
0.7 |
41 |
123 |
Russell |
1.2 |
39 |
124 |
Galax |
0.3 |
38 |
125 |
Carroll |
1.0 |
35 |
126 |
Patrick |
0.7 |
35 |
127 |
Harrisonburg |
1.4 |
35 |
128 |
Dickenson |
0.6 |
34 |
129 |
Wise |
1.3 |
32 |
130 |
Scott |
0.7 |
31 |
131 |
Henry |
1.7 |
30 |
132 |
Lee |
0.7 |
29 |
133 |
Grayson |
0.5 |
25 |
134 |
Bath |
NMF*
|
8 |
|
Total |
818.9 |
116 |
*
$40,000 total
Source:
Secretariat of Finance
Note:
Reimbursements represent fiscal 2001-2002 figures;
per capita income was calculated on the basis of
2001 Census Bureau estimates, the latest available.
As
can be discerned by scanning the table above,
affluent Northern Virginia localities received the
biggest benefit from the tax relief, both in terms
of absolute dollars and adjusted on a per capita
basis. While accounting for just over 26 percent of
the population, the nine Northern Virginia
localities of the Washington metropolitan
statistical area received more than 40 percent of
all car-tax refunds.
Northern
Virginia Relief Act
(AKA
the Personal Property Tax Relief Act)
|
|
%
State
Reimbursement
|
%
State
Population
|
Northern
Virginia |
40.2 |
26.4 |
Richmond |
14.0 |
13.8 |
Hampton
Roads |
19.7 |
22.1 |
Rest
of VA |
27.2 |
37.7 |
Richmond
MSA localities received a sliver more than their proportional share
of the population on a
regional basis, while Hampton Roads localities came
out behind. The rest of Virginia, particularly
poor, rural counties with low personal property
rates, were totally hosed.
How
rural legislators ever approved such an inequitable
distribution of tax relief, I'll never understand.
Perhaps it wasn't clear back in 1998 how the
methodology for calculating the payments would shake
out on a locality-by-locality basis. Whatever the
case, there's no justification for tolerating the
tax now: We have four years of historical payments
to go by, and the evidence is crystal clear.
Gov.
Mark R. Warner and Senate Majority Leader John H.
Chichester, R-Fredericksburg, are forging ahead with
plans to study Virginia's mix of state and local
taxes. As long as it's not employed as a strategem
for extracting more revenues, tax restructuring is a
good idea. It provides lawmakers a chance to put
into place a system that's fairer and more geared to
growth. A good place to start would be to scrutinize
the phase-out of the car tax.
There
are a number of perspectives from which to analyze a
tax.
-
How
fair is it? Does the tax (or phase-out of a tax)
apply equitably across the board, or do certain
groups bear a disproportionate burden? If the
burden is not spread evenly, is it at least
related to the ability of people to pay it?
Observers
of a liberal philosophical bent might insist that
taxes be "progressive" in the sense that
rich people pay more in taxes than poor people --
or, in the case of a tax cut, that poor people
receive a greater benefit than rich people.
The
car tax phase-out flunks the liberal fairness test.
Viewed on a regional basis, the greatest benefits go
to Northern Virginia, the state's wealthiest region
by far. Viewed on a personal basis, the greatest
benefits go to those who can afford to buy more
expensive cars. If the aim is to help poor and
working-class people, a reduction in the sales tax
would do far more than phasing out the car tax.
Observers
of a conservative persuasion might design a tax
structure that stimulates economic growth. By this
logic, taxes on consumption, such as sales and
property taxes, are preferable to taxes on income
and capital accumulation.
The
car tax phase-out also flunks this test. By reducing
the personal property tax, the phase-out rewards the
purchase of expensive automobiles -- typically SUVs
and
high-ticket imports. Does Virginia tax
policy really want to reward the purchase of
gas-guzzling Suburbans, or foreign-made BMWs,
Mercedes and Lexuses? Likewise, by reducing the cost
of owning automobiles, the state subsidizes
Virginians' penchant for commuting ever greater
distances, putting ever more stress on the
transportation system -- and creating traffic
congestion that the state is expected somehow to
solve.
A
conservative approach would structure taxes to
stimulate entrepreneurship and economic growth. A
targeted reduction of small business profits or a
reform of the business-license tax would do far more
to encourage business formation, create jobs, raise
incomes and broaden the tax base than phasing out
the car tax.
In
sum, the car tax phase-out has a single virtue: It
puts money back into the hands of taxpayers. But it
is manifestly unfair, and that unfairness is not
offset by any pro-growth benefit. There must be
better ways for the state to invest its $819 million
in tax rebates. Let us hope that Gov. Warner, Sen.
Chichester and their compatriots can agree what they
are.
--
March
17, 2003
|