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GOP senator: Boost gas sales tax, cut income taxes

Associated Press Modified: November 16, 2012 at 9:30 pm •  Published: November 16, 2012

RICHMOND, Va. (AP) — A senior Senate Republican is challenging his own party's anti-tax conservatives in Virginia's General Assembly, proposing a sales tax on fuels offset by reduced income tax rates to generate hundreds of millions of dollars for transportation.

Sen. John Watkins of Powhatan told top elected officials from eastern Virginia's largest localities that his legislation would generate $773 million in its first year to ease Virginia's backlog in maintaining and repairing highways.

"We have a $1 billion-a-year hole that needs to be filled and this is my attempt to start at it," Watkins told reporters afterward.

His plan keeps in place the 17½ cents-per-gallon state tax on gasoline, the primary source of revenue exclusively for transportation and one that is losing its power to keep pace because of higher mileage standards, reduced driving and soaring road construction costs.

It eliminates the exemption that has shielded motorists from paying the state's 5 percent sales taxes when buying gas, as they do for retail purchases, and indexes the tax to fuel prices, not volume, meaning the tax increases as prices go up.

To offset the higher taxes for fuel, Watkins' legislation specifies $518 million in reductions to income tax rates paid at the lowest levels but retains the current 5.75 percent rate on adjusted gross incomes beyond $17,000 a year.

That's a concession necessary if the bill has even a thin hope of surviving the House of Delegates, where conservative Republicans averse to any tax increases hold two-thirds of the 100 seats, and elections for all of them set for next fall.

To recoup general revenues lost from income tax cuts, Watkins' plan would end tax credits for biofuels and low-emission vehicles, and it would levy sales taxes not now collected on seven different transportation-related areas, including automotive repairs, car washes, use of marinas, armored car costs and bus fares. A raid on general funds, which pay for core services such as public safety and education, would cost Watkins any support from Democrats.

"It's going to take a huge amount of political capital, particularly in the House," said Shep Miller of the Hampton Roads Chamber of Commerce and chairman of the Hampton Roads Business Political Action Committee. His region is one where highway arteries struggle with demands from tourists drawn to its beaches and the commercial traffic that serves its ports.

Watkins hopes to assemble a coalition of city and county mayors and board-of-supervisors chairs allied with the Chamber of Commerce and other muscular business lobbies and frame the issue as one of creating jobs in a sluggish economy.

"I know that we have lost economic development opportunities in Virginia for one reason and one reason only — transportation," Watkins said.

The proposal resonates with local government leaders, particularly in the perpetually gridlocked northern Virginia suburbs and exurbs of Washington, D.C., which have had to step in on transportation where the state has not.

Scott York, a Republican and chairman of the Loudoun County Board of Supervisors, brandished a chart from a survey showing that taxpayers most strongly dislike increases in residential property taxes. For that reason, he said, Watkins' proposal intrigues him.

"Note that the least favorite tax to be raised is the property tax," York said, "but the ... inaction by Richmond forces us to raise the property tax at the local level, and something has to be done. Unfortunately, right now, we're in the position in Loudoun County of discussing setting aside 2 cents of the tax rate for transportation."

Loudoun is among the nation's fastest-growing counties.

Legislative Republican leaders and GOP Gov. Bob McDonnell, who is drafting his own transportation funding bill, greeted Watkins' measure coolly Friday.

Senate Majority Leader Thomas K. Norment, R-James City County, called the proposal very detailed with many different components," saying he's eager for Watkins to provide "greater explanation on the benefits and implications of his plan."

House Majority Leader M. Kirkland Cox, R-Colonial Heights, didn't reject Watkins' proposal, but said it seemed complicated.

"This has a lot of moving parts. If you're going to do something with transportation, it has to be simple and straightforward, maybe two or three components, not seven or eight," he said.

McDonnell's administration was even more noncommittal. The governor's chief spokesman, Tucker Martin, called it "one transportation plan of many that legislators will put forth before the session." McDonnell will review them in the context of his own bill and comment on them later, Martin said.

Watkins' bill takes dead aim at an unpopular McDonnell initiative to impose tolls on a stretch of Interstate 95 near the North Carolina border that's now toll-free. Watkins' bill would allow tolling on existing roads only with legislative approval.

"That's what persuaded me to do this," Watkins said with a laugh.

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