Tax Fairness

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Tax Fairness Concerns about Transit Funding

In order to fund the regional transit system, the voters must approve a sales tax increase of one-half penny on certain purchases.  There is concern that a sales tax is a regressive tax and will fall more heavily on lower income groups.

Considerable work has been done to lessen the impact of the tax on lower income groups:

  • There will be NO sales tax on food, medicine, utilities and housing.
  • Tax revenues will be spent exclusively on public transit, which is critical to those who can’t afford a car (see Table One).
  • The amount of tax is low because other income sources are helping fund transit too.
  • A large percentage of the taxes will be paid by visitors, travelers, and others from outside the region.
  • Affordable housing requirements will provide substantial benefit to lower income groups.
  • As the price of gas increases, driving a car becomes even more difficult for those on limited incomes.

 So why not use some other tax?  People are not likely to approve an increase in their property taxes any time soon.  Examples of failed referendums for property tax increases litter the voting roadside in Orange, Durham and Wake County.  Increasing state taxes is not a politically viable option either.

Transit is less expensive than owning a car

Using public transit is much less expensive than using a car.  When you consider the cost of maintenance, fuel, property taxes, licensing, insurance, and financing, the difference is staggering.

Table One

Annual Cost of Public Transit vs. Annual Cost of Operating a Car

Household Income Cost of Public Transit Transit Cost as a % Of Income Car Operating Costs Car Operating Costs as a % Of Income
$0- $14,999 946.46 9.5%                4,428.64 44%
$15,000- $26,999 986.10 4.7%                5,662.38 27%
$27,000- $43,999 1,016.10 2.9%                6,886.80 20%
$44,000- $72,999 1,051.60 1.9%                7,584.04 14%
$73,000- $143,999 1,090.67 1.1%                8,242.52 8%

Gas price increases put people at risk

What is even more of a concern for the low to moderate income family is the uncertainty of the cost of operating a motor vehicle.  A one dollar increase in the cost of fuel has a much more dramatic impact on this group.  With public transit the cost is spread over the entire system and is not as devastating. 

Table Two illustrates the impact of a ½ cent sales tax on several income groups, both in total additional dollars paid yearly and as a percentage of income.  The last two columns in this table demonstrate the impact of a $1 increase in the cost of fuel in the future. The total dollars and the percentage of income paid for higher-priced gasoline have a much larger impact upon all income groups than the ½ cent sales tax increase.  And the highest cost hit from higher gas prices falls on the lowest income group.

Table Two

Annual Impact of ½ Sales Tax Increase vs. Gasoline Prices Increase

Household Income  Cost of 1/2 Cents Sales Tax 1/2 Cents Sales as a % of Income Cost of $1 per Gallon Gas Price Increase  Increased Gas Cost as a % of Income
$0- $14,999 $ 42.86 0.4%  $ 454.72          4.5%
$15,000- $26,999 $ 82.50 0.4%  $ 581.40       2.8%
$27,000-$43,999 $ 112.50 0.3%  $ 713.72              2.0%
$44,000- 72,999 $ 148.00 0.3%  $ 768.04            1.4%
$73,000- $143,999 $ 187.07 0.2%  $ 827.17              0.9%

Many revenue sources will pay for transit system

The sales tax is only one of six revenue sources that would be used to fund the regional transit plan recommended by the Special Transit Advisory Commission and other local officials and citizens.  The other sources of revenue include:

(1) vehicle registration fee,

(2) vehicle rental tax,

(3) local property tax revenues, which already make up a significant portion of local funding for local transit services,

(4) revenues potentially earned from joint investment in land value appreciation resulting from transit-oriented development around station sites, and

(5) new property tax based revenues around station sites (from finance methods such as tax increment fees or tax district fees).

While the ½ cent sales tax is a significant funding base, it is important to note that it will become a part of a package of six revenue sources.  These other revenue sources are already in place (#1-3), under contract (#4) or pending a commitment to construct a rail system (#5).  This mix of funding sources makes this approach to funding a major rail and bus system much more progressive and fiscally sound than many other urban communities in the US that mostly rely only or predominantly upon a sales tax funding source.