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Hard
Row to Hoe
Don't
expect much in the way of tax reform. The special
interests are in conflict and voters don't trust
legislators in Richmond to keep their promises.
The
Hampton Roads Planning District Commission released
a report earlier this month on the issue of tax
reform. Not surprisingly, the Commission advocates
an increase in taxes.
Among
its many proposals, the report calls for more state
aid to localities. The funding would come from an
increase in state income taxes or state sales taxes
or a combination of the two.
The
Commission recognizes that the new state revenues
would be distributed to localities according to a
formula, but fails to lay out a formula that would
suit it. The formula proposed by the Virginia
Municipal League and the Virginia Association of
Counties is not acceptable to the Commission because
it would work to the disadvantage of Hampton Roads
and to the advantage of regions with higher average
income, particularly Northern Virginia.
Given
the current climate of voter distrust, no region of
the Commonwealth seems to favor routing the enhanced
tax revenues through Richmond. Memory of the
voters’ rejection of 2002 ballot measures in
Hampton Roads and Northern Virginia is surely vivid
in the minds of politicians across the Commonwealth,
but especially in those regions.
Even
though each of last year’s ballot measures was
sold by proponents as a regional tax, it was in fact
a state sales tax collected by the state treasurer
and merely earmarked for those regions. This routing
through Richmond made voters more than a little
skittish because state politicians had repeatedly
ignored such statutory earmarking and used the money
for other purposes.
One
alternative is to allow localities to impose new
taxes directly. This approach faces substantial
obstacles of its own.
Local
option income and sales tax proposals have been
around for decades in Virginia. They are no more
politically feasible now than they have been in the
past.
No
single local government can increase either tax
without adverse economic and political consequences.
Each tax will undermine job creation in the taxing
jurisdiction. Each is likely to prompt a shift in
economic activity to neighboring jurisdictions that
have lower taxes.
Even
if every jurisdiction in a metropolitan area agreed
to impose either or both taxes simultaneously and at
the same rate, jobs and economic activity would tend
to move to jurisdictions just beyond the
metropolitan boundaries. The impact may not be
immediate, but it is inevitable unless a
jurisdiction has a large “captive” employer,
such as a government agency or military
installation.
Government
agencies are not really “captive” at all, as
recent experience demonstrates. Not all agencies
must be located in the District of Columbia or the
City of Richmond. They can locate in West Virginia.
They can also outsource substantial employment.
Already,
financially stressed employees of the U.S. military
constitute a potent political obstacle for any host
locality considering a new tax burden that will fall
heavily on them. Indeed, the general electorate
seems to be in a feisty, anti-tax mood. In every
opportunity voters have had to act directly on a
proposed tax increase during the last year, they
have soundly defeated the tax hike.
This
seems to reflect broad public sentiment that
governments at all levels do not spend the money
they already receive in a responsible way. Why
should they be entrusted with more tax revenues?
Here’s
another alternative. Eliminate the mandates federal
and state governments impose on local governments
and harness government spending to restore taxpayer
confidence.
--
November 3, 2003
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