Let’s Kill the Death Tax and Sell the ABC Stores!
By Mike Thompson • Sep 30th, 2009 • Category: Feature, Government Reform, TaxesAs the state’s economy continues to reel under this recession there are a couple of simple reforms that can take place nationally and in Richmond that could help Virginia.
First, the dreaded estate tax – known as the “death tax” – continues to be a hindrance to employment and investment. A recent study by the American Family Business Foundation, co-authored by the former head of the Congressional Budget Office, Douglas Holtz-Eakin, points to the economic advantages of simply doing away with the death once and for all. Today that tax is 45 percent charged to estates in excess of $3.5 million and will jump back to 55 percent on estates of $1 million in 2011.
Every time the death tax has been reduced nationally and at the state level, tax revenue has increased and additional employment has been generated. What this new study shows is that wiping out the death tax once and for all will create over 1.5 million jobs in the United States and, consequently, about 39,000 jobs here in Virginia. These jobs will be created at no cost to the government - and in this writer’s opinion - most likely with an increase in overall tax revenue. This makes more sense than the current policy of throwing some $800 billion at the economy in order to “save” 3-4 million jobs. There is great difficulty for economists to measure “jobs saved” and it would be much easier to connect the estate tax elimination to actual job creation. These studies have been done accurately with earlier death tax reductions. Job creation is the key to economic recovery, and 39,000 new Virginia jobs would also create hundreds of millions of dollars in new income taxes, sales taxes and property taxes.
The second action is for the state to privatize the ABC stores and take the money generated from the initial auction and pour it into our deteriorating road network. Arguably, the Commonwealth should never have been in the liquor store business and today there are only 18 states that control liquor sales as we do. Taking a government run business private almost always creates a positive economic benefit, but it has to be done carefully and it has to be done wisely. Shedding this enterprise to generate a large upfront cash payment will reduce state operational costs, should generate at least the same annual revenue and broaden consumer choice. This is fundamentally good public policy.
Auctioning off the ABC monopoly stores now controlled by the state would provide the private investor with that same monopoly in the current market areas. Those now privately owned businesses should look and operate like stores in other states that are free to choose what products they offer.
How much would the private sector investors pay for a liquor monopoly? How many more stores might be allowed under a reasonable licensing process? How much additional taxes would be generated by increased sales as has occurred in other states that privatized? How much will the state save in retirement benefits? How many more customers would come into these stores if they were modernized by the private investors and if they broadened the products line? Answers based on a market-oriented framework would create a huge benefit for our state.
The current ABC Control Board could continue with the responsibility to approve new store locations, expansion of existing stores, licensing of bars and restaurants and general oversight of the enterprise. This could be similar to the way the old Federal Home Loan Bank Board functioned when it oversaw the privately owned savings and loans. It worked when done right and it would be the responsibility of those in charge of our public policy to set up the new system in a similar manner. And local zoning restrictions would also apply.
The controversy over how much can be raised up front will be determined by how such a privatization process is structured, how many years these monopoly franchises will last, what kind of new products can be sold in these privately-owned liquor stores, will expansions of existing stores be allowed to match some of the large “wine stores” that exist, etc. If structured reasonably, there will be more money generated. If undue restrictions are placed on the private investor then less money will be offered for these ABC franchises. Investment in the privatization of the ABC monopoly will depend on the way the state manages the sale.
There is every reason to believe that privately owned liquor stores will generate substantial taxes (likely as much if not more than today), save the state hundreds of millions of dollars in retirement benefits over time, remove the state from a business it never should have been involved in, and produce a large sum of money up-front to put into transportation infrastructure.
Mike Thompson is the chairman and president of the Thomas Jefferson Institute for Public Policy, Virginia’s premier non-partisan public policy foundation.
For 24 years Mr. Thompson owned his own marketing company in Springfield. During 11 of those years he was also president of a family owned group of furniture stores in Georgia. After selling his company he started the Thomas Jefferson Institute.
He has been very active in national, state and local politics and has been a member of a number of community organizations, commissions, and committees. He is the Past Chairman of the Virginia Leadership Council for the National Federation of Independent Business (NFIB) and serves as Vice Chairman of the internationally acclaimed Fund for American Studies.
These views are his and do not necessarily reflect those the Institute or its Board of Directors.
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If cutting taxes creates jobs – what happened with the Bush Tax Cuts?
I’ve yet to see compelling data that proves this and the obvious question is – if the wealthy end up keeping more of their money – why would they invest it in companies in this country that cannot provide competitively-priced goods in the first place?
I’d be in favor of this – tax cuts if the recipients can actually demonstrate that jobs were created by what they invested in.
there are lots of ways to invest money – and not all of those ways results in the creation of jobs – in this country – nor worldwide.
doesn’t this idea presume that there is an unsatisfied market demand for products that don’t have enough manufacturing capacity unless more investment money is available?
if taxes are used to create jobs by building highways and bridges and humvees and satellites then you’ve built in the demand…
cut cutting taxes is not going to result in more satellite jobs …
what kinds of jobs are created by cutting taxes?
in the example of the author who owns furniture stores.. if you cut his taxes.. he’s not going to buy more inventory to sell or hire more folks to sell inventory – if he and his competitors are already meeting demand.
right?
how about a link or two to a study that substantiates the premise?
Every time that the federal capital gains tax and the estate tax and the income tax has been cut, the economy has expanded. This has been the case whether that cut was made under President John Kennedy, Jimmy Carter, Ronald Reagan or George Bush. Facts are hard things to hide from and history shows this is to be case. Folks with more money will do one of four things (at least): spend those funds in our local economies on home improvements or buying shoes or sending their kids to college; invest it in areas that are productive so that they make a reasonable return on investment — stocks and bonds; pay down debt thus moving money into banks who should lend it back out to customers for a broad array of economic activities — paying down debt improves the credit worthiness of the payer and thus gives him an improved economic status; or save these extra funds in which case the savings institution will use those funds to lend out to others for various economic activities. Cuts in estate taxes will mean those heirs will have money to spend, invest and save.
Tax cuts are good for the economy but so are government spending restraints and rational regulatory activities. President Bush’s tax cuts helped our economy for sure but the incredible spending spigot that was opened hurt us and the regulatory impetus combined with Congressional approval urging folks to buy homes they simply could not afford were the real reasons behind the housing crash is well known and was a key piece to the current recession.
Its been several years since we sold our furniture stores. Tax cuts would have allowed us to make a greater profit, thus giving us more money to increase payroll, provide bonuses or test different products and promotional ideas. Higher payroll would have allowed our employees to spend more, invest more and save more — all good for the economy. Testing new ideas could have brought more customers into the store and that is goal of advertising, new products and new approaches. That increased advertising and testing new product lines would have helped the radio stations and the local newspapers and the furniture manufacturers and salesmen who peddle the furniture, etc. Our economy is very dynamic and more money in the hands of the private sector and the individual grows the economy. Government spending simply doesn’t have the same impact.
Mike Thompson
“Larry G on October 4th, 2009 at 9:55 am:
If cutting taxes creates jobs – what happened with the Bush Tax Cuts?”
Sure, Richard, try to pin jobs on a tax cut from 7 years ago.
What was unemployment 1 to 2 years after the cut, when you would notice the change?