First Principles

As debate heats up over tax restructuring, Virginians need to think about the underlying principles of their tax system.

Tax Reform is coming soon, courtesy of Democrat Gov. Mark R. Warner. In a speech to the General Assembly’s joint subcommittee on tax restructuring, the governor enumerated his criteria for tax reform, choosing such words as “fair," "simple," "modern," and "efficient” as goals.

But Warner’s litany of ‘how’ to tax does not constitute a set of fundamental principles. First things, like principles, should address “why” taxes are justified; they should explain why one tax is preferable to another. Otherwise, taxation becomes based on little more than raw self interest and politics.

As with all things political, the devil is the details. Gov. Warner thinks the ‘fair’ way to tax physical sales of goods and internet sales is to hit them both. An alternative version of fairness would be to tax neither. To my way of thinking, taxes should not follow the Willie Sutton morality of robbing banks because that’s where the money is.

Virginians should demand that their tax code adhere to carefully articulated principles. Here are the ones that I advocate:

1. Your earnings, regardless of source, are your annual gain as a citizen. A “fair” tax is a flat tax. Pretend the state tax is 5 percent. The person earning $10,000 pays $500, the person earning $100,000 pays $5,000 and the person earning that cool million ($1,000,000) pays $50,000. If you earn 10 or 100 times more you pay 10 or 100 times more. Why should the state covet even more with a punishing progressive tax?

2. Consider what is finite about Virginia – our land, air, water.  I call these the ‘finitudes’. You have a right to own them as personal property. But you don’t have a right to destroy the finitudes or harm others’.  Our taxes for property – personal and business – should be gauged on how the finitudes are used.  Use them gently, tax lightly. Estimate how hard it would be to return the land, water, air to its natural state and tax accordingly. A parking lot where there is run off should be taxed more than a home. A big home should be taxed more than a small home.

3. If you use it, pay for it. Vehicle owners should be taxed at the gas pump, the toll, the license fee as needed to pay for transportation (not all of it, but much of it). Likewise, parks, public waterways, museums, libraries, etc. should have appropriate fees. These fees won’t pay the full freight of the “public good’,” but they will help.

4. If you visit, there’s a fee. Visitors and in-state visitors need to pay for the fire, police, medical, etc. services provided by taxes. Tax accommodations, attractions and amusements.

5. Corporations should pay their cost, not their gain. The cost to the finitudes and the hours of labor they consume – another finite resource – should be taxed as little as possible. More businesses doing less harm to our finitudes create more jobs and more taxes.

6. Create communities with tax savings. Institutionalize communities of “commonweal” for extended families, faith groups, neighbors, and co-workers to pull resources for medical care, education/training, senior care, a safety net in between jobs, etc.  Enhance individual health and retirement savings accounts as well. That means give tax breaks for people who save, share and spend for themselves and for others – instead of having the state provide the service. Every dollar will be spent with far greater efficiency than the state.

7. Do the analysis. Is there a macro-economic model of the Commonwealth? If not, build one. Then, feed it the numbers and see what comes out. The governor’s informal working group and the General Assembly’s tax committee need to explain in detail the economic models they are using. Demand this public disclosure – soon and completely.

8. Look at what is missing. Can we do away with sales tax and food tax? How will we have to amend the Virginia Constitution to keep a portion of the income tax in the cities and counties? Are other taxes needing a principle and appropriate levy?

9. Establish goals. Lower taxes make the economy stronger – creating jobs, wealth, opportunity – to a point of diminishing returns somewhere under 10 percent total burden. Work the numbers in the economic model to see how we can complete our social contract without contracting socialism. Less government is better government. Some government is absolutely necessary.  Lower taxes are better. Fair and just taxes are best.

Revenue neutrality, often heard from Republicans, is not a principle: It's a spending addiction. What other principles matter most?

-- July 14, 2003