Analysis Shows Virginia GOP Governor’s Tax Plan Would Pound The Poor

Virginia Gov. Bob McDonnell (R) has been touring his state to promote a plan that would eliminate Virginia’s gas tax and replace it with an expanded sales tax. McDonnell is touting the plan as a way to fix the state’s dysfunctional transportation funding system, but its practical effect would be to make Virginia’s already regressive tax system even worse. As the Commonwealth Institute explained:

Even with the proposed elimination of the tax on gas, the governor’s plan would result in higher taxes for Virginians across the board. However, the proposed tax changes will fall most heavily on lower-income families.
That’s because as a share of their income, low- and moderate- income households spend more than high-income households buying the basic necessities of life like clothing, toiletries, and school supplies, which are subject to the state’s sales and use tax.

For example, a family making less than $21,000 a year, among the lowest 20 percent of the income distribution, would see its taxes rise by about .21 percent under the governor’s plan. But at the other end of the spectrum, households making over $509,000 a year, in the top 1 percent of the income distribution, would see an increase of just .05 percent.

Under Virginia’s current tax system, the richest 1 percent pay a 5.2 percent effective tax rate, while the poorest Virginians (those making less than $19,000) pay 8.8 percent. McDonnell’s plan would raise those rates, but do so in a way that the gap between what the richest and poorest Virginians are paying would expand. In addition, the plan would shift the responsibility for paying for Virginia’s highways from people who most use the roads (including those from outside the state) to poorer residents who can least afford it.