SACRAMENTO, CA -- 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?

California’s high overall motor vehicle taxes rank it third among all states. Worse, most of these taxes go to
purposes totally unrelated to state highways or highway-related services. While a very small portion of
motor vehicle taxes goes to support the state Department of Motor Vehicles (DMV), the California Highway Patrol
and local projects such as call boxes, the vast majority, averaging $185 per vehicle and called the vehicle license
fee (VLF), goes to non-highway expenditures. VLF funds go to city and county general funds, local health and social service programs, and to the DMV as an administrative fee for collecting the tax for the cities and counties.

The timing, therefore, is ripe for bringing the Virginia car tax revolution to California, and who better to lead
the local revolution than Assemblyman Tom McClintock, one of the Legislature’s most principled high-tax opponents. Assemblyman McClintock has introduced legislation that would phase out the VLF over five years through a series of progressively higher exemptions from the valuation used to calculate the car tax. Thus, for example, in the first year of the phase-out, beginning January 1, 1999, 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, 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 (1998-99), a one-year spending freeze would be imposed on some non-essential
state departments to absorb the half-billion-dollar first-year impact of reducing the car tax. After that,
conservative revenue growth rates for 1999-2000 to 2003-04 would cover the impact of the car tax reduction
and elimination. Also, McClintock’s plan would not affect Prop. 98 funding for schools, proposed funding for state
prisons or Gov. Wilson’s proposed budget reserve.

To protect local governments, McClintock’s bill phases in a dedicated portion of future sales tax revenues to
replace lost VLF revenues. Lost VLF revenues to local government would be replaced on a dollar-for-dollar
basis.

In sum, Tom McClintock says that eliminating the car tax “would abolish a tax that long ago ceased to bear any
resemblance to its original purpose and intention. It would remove a strong disincentive in current law that
keeps motorists from shedding older, higher polluting automobiles. It would provide a significant spur to
economic activity by reducing the cost of new vehicles in California. It would reduce costs to California families
of what is a practical necessity in the Golden State: the family car.” A suggestion for the slogan of this new tax
revolt: Floor it, baby!

-- Lance T. Izumi, Senior Fellow