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The Undoing of the Vehicles License Fee: The Virginia Story as Applied to California

By Brian Leubitz
Founder and Publisher
Calitics

For years upon years, most states had consistent vehicle license fees. They didn't vary all that much from state to state, averaging around 2% of stated value. You paid your couple hundred bucks per year and for that you got to use a tremendous system of roads, traffic lights, and stop signs. All very helpful to your average driver.

Then something happened in Virginia in 1997. Jim Gilmore was elected governor. Yes that crazy guy at the end of the stage in the first few presidential debates. He focused his campaign almost exclusively on eliminating the "car tax" in Virginia.

And it worked. The vehicle license fee was slashed in the state. Funding for the roads and transportation suffered, and eventually the government began to feel the effects across the budget. Stop me if you've heard this before.

But Virginia was able to bring itself out of the abyss. How? They went and elected themselves in 2001 a courageous governor who stood up to the "government stinks" crowd in now Senator elect Mark Warner. Warner went and did the unthinkable, he raised taxes. He restored some of the license fees and increased other fees to ensure that the state of Virginia didn't have to slash across the board.

Here in California, we had quite a similar story, didn't we? Of course, Schwarzenegger didn't really need to campaign on the "car tax." He did it because he could and it calmed the right-wingers that he needed to keep away from Tom McClintock. Let's be honest, had he not even touched the issue, he probably would have won anyway.

But he did campaign on the issue, and so he went about and made deals with interest groups to get his bills paid. Higher ed got their compact to increase funding. K-12 got promises to increase their funding later. All this to slash and burn through our revenue stream. So he paid for the several billion in local government infill with general revenue. In FY 2004-2005, it cost us about $6B, and that number has increased since. Some back of the napkin math gets you to about $25 Billion in the four completed fiscal years since.

Now, what could we have done with $25 Billion? Oh right, we could have avoided a budget crisis.

But it's unclear if there is a Mark Warner in our future. Our 2/3 rules gives a minority a veto power they didn't hold in Virginia. Furthermore, a few Republicans were even willing to come along to help Warner clean up the mess there. Arnold is finally looking at raising taxes, but he only gives a quick smirk at the VLF, raising it by a $12 flat fee. Kevin Drumm has a better idea:

“Unlike a sales tax, which needs to be a flat rate for administrative reasons, the VLF could easily vary by assessed value. It could stay at its current rate of 0.65% up to, say, $10,000 in assessed value, increase to 2% for more expensive cars, and increase still further to 4% for top end cars. The average rate would still be about 2%, but the incidence of the tax would be more progressive.(Mother Jones 11/2008)”

The main element of Arnold's tax plan is the inherently regressive sales tax. Drumm argues for this progressive VLF. As for me, I'd like to see an element that contributes towards our goals under AB32 as well. A quick idea would be to give discounts for low-polluting vehicles while penalties for high-value cars with poor mileage. Yes, Hummer owners I'm looking at you.

But however you do it, we need to restore balance to our tax system. We can't keep eliminating without considering that we are just becoming more and more dependent on the cyclical income tax. It's a recipe for boom and bust that we've seen play out too often here.

Brian Leubitz publishes Calitics.com, the leading California progressive blog covering California politics and policy, and is a candidate for Vice-Chair of the California Democratic Party. He holds a law degree from the University of Texas and a Master of Public Policy (M.P.P) from the Goldman School at The University of California, Berkeley. After practicing law in San Francisco, Brian transitioned into politics and launched Calitics .com in 2005. He has worked on several campaigns in the state, including the Yes on 93 (term limits reform) and the No on 98/Yes on 99 (eminent domain and property rights) campaigns. He currently is a member of the Democratic State Central Committee, serves on the CDP's resolutions committee, and is on the boards of the San Francisco Young Democrats and the Alice B. Toklas LGBT Democratic Club.

Posted on November 21, 2008

Comments

How about using the taxes collected for the roads going for the roads, traffic lights, and stop signs? We collect more than enough money with gas tax to pay for the best roads in the world.
When more money is raised it is added to the general slush fund. Stop the waste.

Posted by: Jeff at November 21, 2008 08:13 AM

Jeff, you are right on.

Leftists or supporters of big government look at things like the VLF as something to increase revenue to use on general spending, not "highway specific" uses. This article didn't point out how gas taxes are ment for that and that California has extremely high gas taxes too.

Sure, a Vehicle License "Fee"; you get to annually update the DMV data base and get a new registration sticker for your car. Big deal. Is it really worth hundreds of buck to get this negigible return for your money? Of course not.

Cowards! RAISE TAXES if your "need" is justified, and you better be able too. Don't play word games with "fees".

Didn't you guys learn from Gray Davis's experience what happens when you play such games?

Posted by: Jay Gould at November 21, 2008 09:53 AM

Silly boys, don't you understand the state needs the money and the people who earn it don't deserve it, so just shut up and pay the bill! Otherwise you're are just an elitist yacht owning obstructionist!

Posted by: sean at November 21, 2008 01:05 PM

Sean, ;)

I thought it was a "Patriotic Duty" to pay FEDERAL income taxes. What is it to pay state taxes?

Money is so tight now: I sold my yacht to Joe Biden who paid in cash off of his book royalties and got a dingy instead...

Posted by: Jay Gould at November 21, 2008 06:56 PM

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