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April 1, 2014

Hybrid Pressures

Among the many problems with the 2013 compromise transportation law is that it failed to minimize the harm done to low-income Virginians when raising the state sales tax. Yes, raising taxes does affect everyone who pays those taxes, but the sales tax isn’t based on anyone’s actual ability to pay and lower-income people spend more of their total income on necessities, so the increase  hit them  harder than high-income people.

Once the law is fully phased-in, the very lowest-income households in the state, who earn less than $21,000, will pay six times more of their income in the new taxes for transportation than people with incomes in the top 1 percent, who earn more than $509,000. And for low-income families in Northern Virginia and Hampton Roads, where the tax hikes were larger, the impact will be even more severe.

Instead of fixing that problem, though, legislators took up the cause of 75,000 hybrid-vehicle drivers in the state. That’s less than 1 percent of the vehicles on the road. Ten bills were filed this session to repeal the additional $64 fee assessed on hybrid drivers as part of the transportation funding package. The particular bill that was signed by the governor, HB975, will go into effect July 1, 2015.

While there are good reasons why this tax was misguided in the first place, the reality is that repealing it will reduce revenues for transportation by nearly $7 million next year. And the state will refund another $2.2 million in hybrid taxes already paid this year.

Instead, lawmakers could have relieved some of the pressure on low-income working families across the state by making the state’s earned income credit (EIC) refundable, meaning that if the credit exceeds what the household owes in income taxes, they could get the difference in the form of a refund.. Lawmakers even had a bill to do it. HB1151 would have reduced the disproportionate impact of sales and excise taxes on low-income families.

To help hammer home the difference this change could have made for families, we built an online calculator that allows folks to estimate how Virginia’s current EIC helps households, and more importantly, how making it refundable would bring bigger benefits.

Hybrid drivers won a repeal of a tax they deemed unfair. That’s fair enough. Low-income Virginians deserve the same consideration.

–Sara Okos, Policy Director

The Commonwealth Institute

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