POLICY BRIEF Part II: Your Transportation Tax Burden by Michael Ennis Washington Policy Center Center for Transportation Policy April 2007 P.O. Box 3643, Seattle, WA 98124-3643 888-WPC-9272 www.washingtonpolicy.org
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April 2007 Part II: Your Transportation Tax Burden Transportation taxes would climb 24% or to as much as $1,695 if the RTID/ST2 package is approved by voters in November. by Michael Ennis Director, Center for Transportation Policy Every year Puget Sound residents pay an average of $1,303 per household in transportation related taxes. Public officials are asking voters to approve a multi-billion dollar roads and transit package that would increase the current transportation tax burden by as much as 24% per family. The added tax burden from the combined Sound Transit and Regional Transportation Investment District (ST2/RTID) package would be $286 per year for families, increasing the three county average to $1,588. Washington led the country in per capita sales tax collections in 2004, collecting an average of $1,577 per person, annually. If the ST2/RTID measure passes, the added sales tax rate will push the annual amount collected beyond $1,600 per citizen and continue to ensure that Washington remains the leader in per capita sales tax collections. If the ST2/RTID measure is approved, car tabs will climb an average of $68 per vehicle and the average family will pay about $137 more a year for registering a vehicle. Washington Policy Center s new Transportation Tax Index allows for the first time, Puget Sound families to have the economic context to fully understand how proposed tax increases for transportation projects stack up with how much a family currently pays. Washington Policy Center - 1 -
Summary Every year Puget Sound residents pay an average of $1,303 per household in transportation taxes. Public officials are asking voters to approve a multi-billion dollar roads and transit package in November that would increase the current transportation tax burden by as much as 24% per household. The unbalanced tax proposal combines two areas of spending. The roads piece, commonly known as the Regional Transportation Investment District (RTID), would fund about $9 billion in regional road improvements. And the public transportation portion, Sound Transit phase 2 (ST2), would spend about $20 billion more on light rail, bus and commuter rail service. 1 RTID proposes to raise the sales tax in Pierce, Snohomish and King Counties by 0.1% and impose a 0.8% increase in the Motor Vehicle Excise Tax (MVET). Sound Transit would increase the sales tax in the three counties by an additional 0.5%. If the RTID/ST2 ballot measure passes, the sales tax rate in the three counties will climb a total of.6%. In other words, the sales tax rate in most areas of the three counties will range between 9.1% and 9.5%. To put this in perspective, Washington led the country in per capita sales tax collections in 2004, collecting an average of $1,577 per person annually. 2 Further increasing the sales tax rate will push the annual amount collected beyond $1,600 per citizen and continue to ensure that Washington remains the leader in per capita sales tax collections. If the RTID/ST2 package is approved, the average household with one vehicle would pay about $218 per year in additional transportation taxes, or $286 per year for households with two vehicles. 3 To determine how these amounts compare to a household s current transportation tax burden, it is important to identify the various taxes and fees that are measurable and have a consistent impact on a household budget. Household Transportation Tax Index There are five types of public entities that have the authority to impose and collect taxes related to transportation in the Puget Sound. These are the federal government, state government, counties, cities and special districts created by the state, such as Sound Transit and the RTID. 1 RTID and ST2 costs are Year of Expenditure estimates and do not include debt service. 2 dor.wa.gov/docs/reports/2006/compare06/table10.pdf 3 Each.1% sales tax equals $25 per household. RTID calculates $80 for every $10,000 of the vehicle's worth. RTID also calculates the average value of all vehicles in the tri-county region is $8,500. This translates to $68 per vehicle at the average value. Washington Policy Center - 2 -
These groups have a variety of financial powers that are used to support transportation related services. For example, the state has more than 60 types of transportation taxes and fees. Most of these assessments however, do not affect many people and therefore do not have a consistent impact on a household budget. Some of these include aircraft fuel taxes, log truck permits, and vessel fees. Other taxes are paid out of a family budget more consistently and can be measured in a household transportation tax index. They include sales and fuel taxes, annual vehicle registration fees and the motor vehicle excise tax. Until now, it has been difficult to understand how these tax burdens add up in the context of an average family budget. Both RTID and Sound Transit attempt to illustrate their bottom line costs, but without the perspective of how much we currently pay it is difficult for taxpayers to judge the actual burden. Furthermore, the agencies estimates are not always accurate and typically jump between household tax burdens and individual tax burdens. For example, RTID s revised Blueprint for Progress estimates that if the combined package is approved, the average cost per household will be $218. 4 But this estimate only assumes a vehicle ownership rate of one car per household. Since the RTID measure proposes a 0.8% increase in the MVET, the average vehicle ownership rate per household is important to gain an accurate estimate. In reality, the average vehicle ownership rate in Washington is 2.01. 5 This means the true household tax burden for the ST2/RTID package is actually $286 per year. Creating a regional transportation tax index shows how much the average household currently pays in transportation related taxes in King, Pierce and Snohomish Counties, and defines how the ST2/RTID proposal will stack up against how much residents currently pay. Public Transportation There are four county or city public transportation systems in King, Pierce, and Snohomish Counties. Each system possesses a sales tax authority to fund its own services. Pierce Transit and Everett Transit impose a 0.6% sales tax and King County Metro and Snohomish Community Transit impose a 0.9% sales tax. Generally, each 0.1% sales tax cost a household about $25 per year. 6 So the average family in King County pays about $225 per year in sales taxes to fund King County Metro. 4 http://www.rtid.org/blueprint.html 5 RTID estimates a household tax burden based on the assumption of one vehicle per household. According to a report from the WSDOT, Travel Indicators and Trends in Washington State, data collected from the National Household Travel Survey (NHTS) indicates that the Washington State household vehicle ownership rate in 2001 was 2.01. Consequently, this Policy Brief assumes a household vehicle ownership rate of 2.01. 6 The sales tax calculation is the generally accepted model for public agencies and is the same assumption adopted by the RTID, Sound Transit and King County for their financial estimates. Washington Policy Center - 3 -
Car Tabs Vehicle owners must pay an annual vehicle registration fee for the privilege of driving a car in Washington. The base registration fee is $30 a year. Car tabs also include a weight fee, which is based on the gross vehicle weight. The scale is $10 for vehicle weights between 0-4000 lbs, $20 for weights between 4001-6000 lbs, and $30 for vehicles weighing between 6001-8000 lbs. 7 This Policy Brief assumes an average vehicle weight fee of $10 per vehicle and an average of 2.01 vehicles per household when calculating the total annual vehicle registration fee. Therefore, on average, a household pays about $80 per year in vehicle registration fees. 8 Seattle Street Maintenance Proposition In 2006, voters in Seattle approved a road maintenance measure, which increased property tax collections in the city by $365 million over nine years. Seattle households now pay an average of $144 more per year for the street maintenance proposition. 9 Sound Transit, Phase 1 In 1996, Puget Sound voters approved Sound Move, the first phase of Sound Transit. The plan imposed a ten-year 0.4% sales and use tax increase and a 0.3% Motor Vehicle Excise Tax (MVET) and consisted of a commuter rail service, a regional bus system connecting Pierce, Snohomish and King Counties, and Washington s first light rail segment. At the time Sound Transit officials said it would cost $3.9 billion (in 1995 dollars) and take 10 years to complete. Sound Transit now says the cost of its first phase is approaching $15 billion (Year of Expenditure) and they will not complete it until 2020. In addition, Sound Transit officials now say they intend to collect the 0.4% sales tax forever, even after the first phase is complete in 2020. Generally, each 0.1% sales tax reduces household income about $25 more per year and each.1% MVET equals $17.88 per vehicle. 10 Combining the sales tax and MVET, shows that households currently pay an average of $208 per year for the first phase of Sound Transit. Fuel Tax Washington drivers must pay both a state and federal per-gallon gas tax when purchasing fuel. The current federal gas tax is 18.4 cents per gallon and the state gas tax (as of July 2007) is 36 cents per gallon. Fuel tax estimates are based on an average of 7 http://www.dol.wa.gov/vehicleregistration/fees.html 8 It should also be noted that most households pay the MVET in combination with their vehicle registration fees. So car tabs will appear larger than the average of $40 per vehicle listed here. This Policy Brief does include the MVET, but only in combination with the agencies that impose it. 9 A $400,000 home in Seattle would have an increased property tax burden of $144 annually. 10 The sales tax calculation is the generally accepted model and is the same assumption adopted by the RTID, Sound Transit and King County for their financial estimates. The MVET calculation is based on RTID s estimates in its Blueprint for Progress; RTID calculates $143 in MVET for each vehicle owned. As a result, using the average value of a vehicle, each.1% of MVET translates to $17.88 per vehicle. Also assume 2.01 cars per household. Washington Policy Center - 4 -
15,000 miles per year at 22 mpg. The gas tax amounts also assume 2.01 cars per household. This means the average family pays about $745 in annual fuel taxes. The following table shows the current transportation tax burden for the average household in Pierce, King and Snohomish Counties. Table 1: Annual Household Transportation Tax Index in King, Pierce and Snohomish Counties 11 If you live here -- King (not Seattle) Seattle Pierce Snohomish Everett (not Everett) You pay these transportation taxes -- Transportation Taxes Sound Transit, Phase 1----------------- $208 $208 $208 $208 $208 Federal Gas Tax-------------------------- $252 $252 $252 $252 $252 WA State Gas Tax------------------------ $493 $493 $493 $493 $493 Pierce Transit------------------------------ $0 $0 $150 $0 $0 King County Metro------------------------ $225 $225 $0 $0 $0 Snohomish Comm. Transit------------- $0 $0 $0 $225 $225 Everett Transit System------------------ $0 $0 $0 $0 $150 City of Seattle Prop. 1------------------- $0 $144 $0 $0 $0 Annual Vehicle Registration Fees--- $80 $80 $80 $80 $80 Total Annual Tax Burden $1,259 $1,403 $1,184 $1,259 $1,409 Households in Seattle and Everett currently pay the most in transportation taxes, more than $1,400 per year. Pierce County households pay the least, with an annual burden of about $1,184 per year. Combining all the current transportation related taxes shows the average household in Pierce, Snohomish and King Counties pays about $1,303 per year. With an average of 57%, state and federal fuel taxes impose the greatest burden on households throughout the three counties. The state portion of the fuel tax represents between 34% and 41% of the overall transportation tax burden, while the federal portion is between 18% and 21%. Another significant taxing area is funding for public transportation. In Everett, for example, households are obligated to pay for three public transit agencies, which 11 The total transportation amounts do not include local taxes (except for Seattle s recently voter-approved road maintenance proposition) or various other state fees. The taxes and fees were chosen based on whether they could be accurately measured and if they had a consistent or annual effect on a household budget. Washington Policy Center - 5 -
represent more than 42% of their overall transportation tax burden. Compare this to Pierce County, which only pays about 31% toward public transit agencies. Rounding out the field of transportation taxes is the annual vehicle registration fee, which represents between 6% and 7% of a household s transportation tax index. These distributions can be seen in more detail in the appendix of this Policy Brief. If voters approve the ST2/RTID tax package this November, these transportation tax burdens would increase substantially. The following table compares the current annual transportation tax burden with the proposed increases from RTID and ST2. Table 2: Comparing Current Transportation Taxes with Proposed ST2/RTID Package, by Household King Seattle Pierce Snohomish Everett Transportation Taxes ST2/RTID -- proposed (not Seattle) $286 $286 $286 (not Everett) $286 $286 Current Transportation Tax Burden $1,259 $1,403 $1,184 $1,259 $1,409 Total Proposed Tax Burden $1,545 $1,689 $1,470 $1,545 $1,695 Percentage Increase 23% 20% 24% 23% 20% On average, every household in Pierce, King and Snohomish County would experience a 22% increase in annual transportation taxes. Pierce County households would see the largest percentage increase, with 24%, and Seattle and Everett would see the lowest percentage increase, 20%. Conclusion Defining how much households currently pay in transportation taxes builds the context needed for taxpayers to evaluate the impact of the proposed RTID/ST2 package in November. With an average transportation tax increase of 22% per household or an additional $286 per year, residents, for the first time ever, now have the financial context to decide for themselves how the proposal stacks up. Washington Policy Center - 6 -
Appendix 2007 Distribution of Transportation Taxes: King County, not Seattle Vehicle Registration Fees, $80, 6% Sound Transit, phase 1, $208, 17% King County Metro, $225, 18% Federal Gas Tax, $252, 20% WA State Gas Tax, $493, 39% 2007 Distribution of Transportation Taxes: King County, including Seattle Annual Vehicle Registration Fees, $80, 6% Seattle Prop. 1, $144, 10% King County Metro, $225, 16% Sound Transit, Phase 1, $208, 15% Federal Gas Tax, $252, 18% WA State Gas Tax, $493, 35% Washington Policy Center - 7 -
2007 Distribution of Transportation Taxes: Pierce County Annual Vehicle Registration Fees, $80, 7% Sound Transit, Phase 1, $208, 18% Pierce Transit, $150, 13% Federal Gas Tax, $252, 21% WA State Gas Tax, $493, 41% 2007 Distribution of Transportation Taxes: Snohomish County, not Everett Snohomish Comm. Transit, $225, 18% Annual Vehicle Registration Fees, $80, 6% Sound Transit, Phase 1, $208, 17% Federal Gas Tax, $252, 20% WA State Gas Tax, $493, 39% Washington Policy Center - 8 -
2007 Distribution of Transportation Taxes: Snohomish County, including Everett Everett Transit System, $150, 11% Annual Vehicle Registration Fees, $80, 6% Sound Transit, Phase 1, $208, 15% Snohomish Comm. Transit, $225, 16% Federal Gas Tax, $252, 18% WA State Gas Tax, $493, 34% Washington Policy Center - 9 -
About the Author Michel Ennis is the Director of the Center for Transportation Policy. Before Joining Washington Policy Center, Michael worked for the Washington state Senate and House of Representatives and was formerly a staff assistant for U.S. Senator Slade Gorton. Michael served in the U.S. Army with the 2nd Ranger Battalion and has been active in local government affairs. He earned his Bachelor's degree from the University of Washington where he studied Political Science. He also earned his Master's of Public Administration degree from the Daniel J Evans School of Public Affairs also at the University of Washington. Published by Washington Policy Center Chairman President Vice President for Research Communications Coordinator Greg Porter Daniel Mead Smith Paul Guppy Lyndsey Hartje Nothing in this document should be construed as any attempt to aid or hinder any legislation before any legislative body. If you have any comments or questions about this study, please contact us at: Washington Policy Center PO Box 3643 Seattle, WA 98124-3643 Visit our website at www.washingtonpolicy.org. E-mail: wpc@washingtonpolicy.org. Or call us toll free at 1-888-972-9272 Washington Policy Center, 2007 Washington Policy Center - 10 -
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