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Just
before Thanksgiving, Gov. Mark R. Warner proposed
the largest tax increase in the history of Virginia. The proposal
includes a 22 percent increase in the sales tax,
from 4.5 percent to 5.5 percent.
It includes an increase in the top income tax
rate in the state, from 5.75 percent to 6.25
percent.
In
the future, it would raise income taxes on seniors
age 62 to 64, and on some seniors 65 and over, by
eliminating or reducing current income exemptions
for them. It
also would increase the cigarette tax by 10 times,
and give local governments the authority to triple
that.
The
plan throws some bones to taxpayers, like finishing
the phase out of the car tax over an excessively
long 4 more years. But
overall the plan would raise state taxes on
Virginians by a record $1 billion over the next
budget cycle.
A
False Foundation
Warner
pleads that the tax increase is necessary because
the state is suffering from a chronic, long-term
budget crisis, reflected in a supposed shortfall of
$1 billion over the next two years.
He claims that the budget crisis has already
forced him to cut state spending by $6 billion.
But the truth is there have been no cuts, and
the supposed budget crisis is a complete fraud on
the voters. The state budget has continued to grow
every year Warner has been in office.
Last year it increased by $1 billion, from
$25 billion to $26 billion, an increase of 4 percent.
The year before that it increased $1.5
billion, from $23.5 billion to $5 billion, an
increase of 6.4 percent.
Indeed,
the state budget is up
$6 billion over the last five years, to a record
$26 billion, highest in the history of Virginia. Over that
period, the Virginia
state budget has increased a whopping 30 percent.
What
the politicians are really talking about when they
claim $6 billion in cuts is that they wanted to
increase state spending even more, by an additional
$6 billion, but they couldn’t finance that much of
an increase.
Had that increase gone into effect, the state
budget today would be $32 billion instead of $26
billion. The
budget would then have increased by a ridiculous 60
percent over the last 5 years.
Folks, Virginia is not Sweden.
Nor
is it California -- though you couldn't tell from
its recent spending record. From 1997 to
2002, per capita state spending in California
rose by 42 percent, and per capita taxes rose by 28
percent. Over
the same period, per capita state spending in Virginia
rose by a shocking 56 percent, while per capita
taxes rose by 37 percent.
Consequently, per capita state spending and
taxes each rose a shattering 33 percent faster in
Virginia
than in California.
Some
budget crisis. In
recent years, Virginia state government has been on the wildest spending
spree in the state’s history.
The tax increase is now being advanced
because big government liberals like Mark Warner
want to keep that wild spending spree going.
That is what it is all about.
Let
me prove that. State
revenues are already projected to grow by close to
five percent a year over each of the next two years.
That means that state spending can continue
to grow by about five percent annually over the next
two years to new record levels. Moreover, in the last quarter, state revenues
grew much faster than this, at an annual pace of 8.4
percent. So
where is the budget crisis?
The
budget crisis is that Howard Dean-style liberals
like Mark Warner and Senate Finance Committee
Chairman John Chichester want to increase state
spending even faster.
They want to increase it 50 percent faster
than the long run growth rate of current state
revenues, to seven- to eight-percent a year rather
than five percent.
That
is the issue that Mark Warner has placed before the
voters. Should
we bring to
Virginia
the policy that Howard Dean is proposing for the
nation? Should we increase state taxes so we can
increase state spending even faster, faster even
than California, to new record levels?
You
hear much talk from Warner and his tax increase
cronies that the state budget crisis is so severe
there is no way that stronger economic growth from
the state’s emerging economic recovery will
produce enough revenues to solve it.
We can’t grow our way out of this problem,
they say.
Frankly,
that is true, by definition.
The problem is not that there is a revenue
shortfall. The problem is that Warner and his gaggle
of high-tax special interests want to increase state
spending faster than economic growth.
So,
more precisely, that is what the tax increase issue
is all about. Should
the state take a bigger percentage of your income so
that it can fund a state government spending boom to
new record levels? Or
should the state’s tax-and-spending growth be
reasonably limited to grow at about the same rate as
the overall economy over time, keeping the state tax
burden at the same level relative to your income as
today?
Warner’s
tax-increase crusaders are doing their best to
prevent that real issue from emerging in any public
discussion. On
Wednesday, November 26, Chichester was quoted in the
Washington Post as saying the following
regarding Warner’s tax increase proposal: “Like
many of us, he recognizes that we have cut budgets
and cut budgets until that’s not really an
option.” Given
the reality that there have been no cuts, and the
tax increase is proposed in truth to increase state
spending even faster in a state where spending is
already increasing faster than in California, that
public statement is simply dishonorable.
No
Taxation Without Representation
My
experience shows me that Virginians like their
politics to be polite, to the point where you
can’t call a damned liar a liar in public.
But somebody has to shake the system up,
because Virginians are losing control over their
state government.
Let
us not forget what Warner promised voters when he
ran for governor in 2001.
He won that race by vilifying his opponent
for suggesting that he would ever consider raising
taxes. Remember
his ads? At a
time like this, they said right after 9/11, we
don’t need sleazy politicians running negative
campaigns with false accusations about tax
increases.
Last
year, Warner wanted to raise taxes for
transportation improvements but, giving lip service
to his campaign promise, he kicked the decision over
to the voters. Here in Northern Virginia, we held a
referendum to increase the state sales tax by 11
percent -- half as much as Warner now proposes.
Big
Business, Big Government, and every other big
special interest lined up behind it. They spent $2.5
million to snooker voters into supporting the scam,
along with the governor’s fierce campaigning in
favor of it. The
opponents had only pocket change, one newly elected
junior state senator, a couple of writers, and a
volunteer grassroots operation.
Nevertheless,
the people rejected that tax increase decisively, 55
percent to 45 percent.
If the opponents had equal resources to the
proponents, it would have been defeated at least
three to one. I
know because that was the margin in the debates in
which I participated across the region where the
audience was polled after the discussion.
Moreover,
the same process occurred in Tidewater.
There the voters rejected the same 22 percent
sales tax increase Warner now proposes by a
landslide margin of 63 percent to 37 percent.
Those
of us who opposed holding the referenda, knowing
that we would be hopelessly outspent in an unfair
process, were told, “Why are you afraid of the
voters?”
In
coming back now one year later and scheming to ram
through the General Assembly a tax increase even
larger than the one voters overwhelmingly rejected
last year, Gov. Warner is showing no respect for the
electorate. The same applies to his Republican
allies like John Chichester.
Despite
repeated calls to detail his tax reform agenda for
last month's General Assembly elections, Warner
doggedly refused. Only one reasonable conclusion can
be drawn: If the election became a referendum on tax
increases, Democrats and his Republican allies would
have gone down in flames. In sum, Warner's push for
a tax increase in the 2004 session is nothing less
than a disgraceful attempt to cut the voters out of
the process altogether.
But
the state’s elitists are perfectly OK with that.
On Nov. 25, the day Warner announced his
tax-increase plan, the Washington Post
basically ran his press release on the front page.
(As an aside, if you are going to be a
sophisticated, intelligent and aware citizen in
Northern Virginia, you have to recognize that the Post
is not actually a journalistic enterprise: It is a
political activist organization posing as a
journalistic enterprise.)
Remarkably,
there will be no public debate on the issue. Who
will sponsor a forum where the other side can be
heard? Will there
even be a debate? You won’t see one at any
of the state’s major business organizations, who
have been taken over by interests who live off the
taxpayers, and now heavily support tax increases on
working people, like the sales tax increase.
If Warner’s back room tax increase gambit
works, then, frankly we will have returned to
taxation without representation.
Whacking
the Economy, and Northern Virginia
The
economy in Virginia has been lousy ever since Warner
was elected. Yet
we never heard any sort of economic recovery
proposal from the governor.
Probably the wealthiest governor in the
history of the state, Warner never seemed to notice
that anyone was suffering.
Now with a recovery just budding, he proposes
to whack it with a tax increase.
Warner
advances an economic theory popular with public
employee unions and government contractors.
The way to achieve economic growth, he says, is
through higher taxes and government spending. All
the wonderful government services will attract
businesses and highly skilled workers to the state.
But
such special-interest economics has no intellectual
credibility. Higher taxes reduce incentives for
investment, saving, work, and entrepreneurship.
Sure, some level of government functioning is
necessary and productive. Transportation and
education up to reasonable levels do promote
economic growth. But at our current levels of taxing
and spending in the U.S., the negative incentive
effects of taxes predominate.
A
vast economic literature supports this conclusion
unequivocally. Here's the bottom line: In states
that cut taxes, the economy grows faster, along with
personal income and jobs.
In states that raise taxes, the economy
declines, with much slower growth in income and
jobs.
Indeed,
experience shows that states that raise taxes
paradoxically suffer chronic deficits thereafter,
while states that cut taxes enjoy budget surpluses.
The reason: When states raise taxes they
project revenue increases that they then budget for
spending. But
tax increases slow economic growth, the projected
revenue increase never materializes, and a deficit
results. When
states cut taxes, they expect slower revenue growth
and budget for lower levels of spending growth.
But the positive effects of the tax cut
stimulate the economy, revenues flow in greater than
expected, and a budget surplus results.
Warner’s
tax-increase proposal would be especially harmful
because he proposes to increase the top income tax
rate, which always has the most negative economic
effects. Due
to the negative effects on economic growth, such
increases never produce the revenue expected.
Indeed,
Warner proposes to scrap what is basically a flat
income tax in Virginia and replace it with a more
progressive structure that would relatively penalize
hard work, savings, investment and productivity much
more. As
Professor Mark Crain shows in his new book, Volatile
States, the current flat income tax has served
Virginia well. Since
1970, a period of over 30 years, Virginia has
sported the 4th highest income growth
among the 50 states. While
in 1970 Virginia ranked 30th among the
states in personal, per capita income, by 2002 the
state had soared to 11th place.
Warner’s
proposal to dump that extremely successful policy
for old-fashioned left-wing progressivism would
propel Virginia to backwater economic status.
Indeed, Virginia’s income tax is already
well above the national average in relation to
personal income. We
are in dangerous economic territory if we try to
raise it further.
Warner’s
income tax increase would whack Northern Virginia
particularly hard, because incomes are substantially
higher there than in the rest of the state.
The region now gets back only 46 cents for
every tax dollar it sends to Richmond.
Raising the top income tax rate and lowering
income taxes at the bottom of the income scale would
sharply worsen the disparity.
As
Northern Virginia’s elected officials
consider Warner's tax proposals in January, they
must ask themselves: Are they more interested in
representing the economic interests of the region or
in getting more money to buy votes for a political
machine?
Warner's
Political Revenge
Nevertheless,
Warner’s tax plan may prove to be a masterstroke
in one sense. If
he gets it through the legislature, it will cause a
massive split in the Republican party now enjoying
huge majorities in the Assembly.
The Republican grassroots base is not
remotely in favor of increasing taxes.
You can’t expect to govern from the Left
with a political base on the Right.
Underestimate
this at your mortal peril, Republicans.
Those who support the tax increase risk
spirited primary challenges and even third-party
challenges. Many grassroots Republicans will
lose interest in the Party and won’t show up when
it comes time to raise money and vote.
It won’t take much of that to turn the tide
towards the Democrats and their special-interest
political machine in race after race.
For the public will rightly ask, who needs a
Republican majority in the Assembly if they are just
going to rubber stamp a liberal Democrat governor’s record tax increase?
--
December 1, 2003
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