Where's
the Analysis?
In
pushing a $500 million-a-year tax hike, Mark Warner
appears to assume that higher taxes will not slow
the state's economic growth. But it's hard to
know: He offers no numbers to go by.
By
December 15, three weeks will have elapsed since Gov.
Mark R. Warner announced his plan to raise state
taxes by $500 million a year. He has yet to provide
any analysis of the economic impact of his plan.
This
may be yet another example of Warner’s tendency to
withhold important information until it suits his
political interest to release it. Or it may mean
that he announced his plan without doing the kind of
study required to understand the real world impact
of his plan on jobs, the state’s economy and
future revenue collections.
In
either case, Warner has hurt his prospects of
winning approval of his plan. He has the burden of
convincing lawmakers that these changes to
Virginia’s tax code are worthy of support. He has
a long way to go to make that case.
Is
it possible that Warner has reconciled himself to
losing this battle and has no intention of giving
his opponents further ammunition to use against him
in the future? The only other plausible explanation
for his failure to make a compelling case for a tax
hike is that he doesn’t fully understand the role
of the governor in the legislative process.
As
George Mason University economics professor Mark
Crain has shown in his recently published book Volatile
States, Virginia’s strong economic performance
is attributable in part to the relatively low tax
burden it imposes. As that burden increases, even
marginally, there is sure to be some adverse effect
on the state’s economic performance. The General
Assembly needs to understand what that negative
effect is likely to be before it votes on Warner’s
plan.
Virginia’s
current sales tax rate stands at 4.5 cents per
dollar, but would increase to 5.5 cents under
Warner’s plan. This will push Virginia’s rate
above that of neighboring Maryland, which imposes a
5-cent sales tax. How will this affect retail sales,
job creation and economic activity in Northern
Virginia?
The
state tax on cigarettes in Virginia is now the
lowest among states. What will happen to cigarette
sales in the Commonwealth if the state and local tax
increases by 75 cents per pack, as Warner proposes?
Will cigarette sales decline? Will the state ever
realize the revenues Warner projects from this tax
increase.
Just
months ago, Warner celebrated the announcement by
Philip Morris that it would move its headquarters to
Virginia. Will other companies ever consider moving
to Virginia when they see how Philip Morris was
sandbagged with a 75 cents-per-pack cigarette tax
within a year of coming to Virginia?
What
impact will this kind of punitive cigarette tax have
on the economy of Southside and Southwestern
Virginia, both of which have tobacco-growing
communities already reeling from economic reversals?
Has
anyone in the Warner Administration considered how
corporations would react to Warner’s proposed
closing of corporate tax loopholes, if they are
enacted? Will any move their operations from
Virginia?
Would
these tax law changes discourage other corporations
from doing business here?
There
is a suspicion growing among Republicans that
Warner’s move is designed to prompt Republicans to
vote against a tax increase portrayed by Democrats
as a progressive initiative. Warner can then attack
Republicans as reactionaries right up to the
legislative elections in 2005, when he hopes to help
elect “progressive” Democrats and claim the
political victory that Republicans denied him at the
2004 legislative session.
--
December 15, 2003
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