by Lance T. Izumi, Fellow in California Studies
Pacific Research Institute
March 10, 1998

Announcer lead: Time for Perspectives. Lance Izumi says that California's high car taxes could trigger another tax revolt.

Last year, Republican James Gilmore won a landslide victory in the Virginia governor's race by capitalizing on grassroots anger over the state car tax. Could a similar rebellion occur here in California?

Consider. California's high overall motor vehicle taxes rank it third among all states. Worse, the largest motor vehicle tax, the vehicle license fee or VLF, averages $185 per vehicle and goes only to non-highway expenditures. VLF funds go mostly to city and county general funds and local health and social service programs.

Recently, Assemblyman Tom McClintock introduced legislation to eliminate the VLF car tax. Under McClintock's plan, the VLF would be phased out over five years. In year one of the phase-out, the first $5,000 of a vehicle's valuation would be exempt from taxation. In the following years, the exemption would increase by $5,000 increments per year until, in the fifth year, there would be a total exemption for all vehicles.

What would elimination of the car tax do to the state budget? Not much. Because of California's economic rebound, revenues to the state General Fund are skyrocketing. According to Assemblyman McClintock, in the first year of the phase-out, a one-year spending freeze would be imposed on some non-essential state departments to offset the half-billion-dollar first-year impact of reducing the car tax. After that, modest revenue growth rates for the next four years would cover the impact of the car tax reduction and elimination. Also, McClintock's plan would not affect Prop. 98 funding for schools or proposed funding for state prisons.

To protect local governments, McClintock's bill dedicates a portion of future sales taxes to replace lost VLF revenues.

The bottom line, according to Mr. McClintock, is that abolishing the car tax "would reduce costs to California families of a practical necessity in the Golden State: the family car." My slogan suggestion for this new tax revolt: Floor it, baby!

With a perspective, I'm Lance Izumi.