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Out
of Hiding
Now
we know why Governor Warner didn't want to talk
about taxes before the November elections: He's just
proposed one of the biggest tax hikes in Virginia
history.
After
months of blather about the need to “modernize”
Virginia’s “antiquated” tax laws, Gov. Mark R.
Warner announced a plan last Monday that leaves
those laws generally untouched. His
proposal is essentially a big tax hike with three
principal components.
The
first and most significant is a 22 percent increase
in the state sales tax, the result of adding a penny
to the current rate of 4.5 cents per dollar.
The
second is to hit cigarette smokers — America’s
version of an “untouchable” caste — with a
double whammy. Warner
would increase the state cigarette tax from 2.5
cents to 25 cents per pack and allow counties to
tack on another 50 cents per pack.
The
third is an increase in income taxes to be paid by
those with taxable income above $100,000, seniors
with income above $50,000 and those who become 62
years old after January 1, 2005.
We
now understand why Warner refused to release this
plan before the 2003 elections.
It is bad economic policy, shamelessly
cynical and unlikely to succeed.
A
big state tax hike will undermine the recent tax
cuts enacted by Congress.
Those cuts have clearly contributed to the
national economic rebound.
Warner
has not provided a detailed analysis of the impact
of his proposal on Virginia business and industry,
on jobs or on Virginia’s future revenues.
Every
tax hike has some adverse effect on economic
activity. For
example, the cigarette tax increase may actually
reduce sales. The
General Assembly should carefully study what the
negative impacts are likely to be.
Warner’s
proposal is cynical in several ways.
It targets a single, disfavored class of
Virginians — smokers — and forces them to carry
a disproportionate tax burden to fund Medicaid.
He also pits class against class, promising
tax relief to 65 percent of Virginia taxpayers while
heaping new tax burdens on those with higher
incomes. He
promises full funding of the car tax repeal, but
leaves the burden of assuring that funding to his
successor.
Northern
Virginia taxpayers in particular will not warm to
this plan. Those
who will see their sales tax increase by 22 percent
are unlikely to think they will actually be paying
less in taxes even with the reduction in the sales
tax on food, the elimination of the estate tax and
changes in income tax brackets.
Virginia’s
million-plus smokers will pay considerably more each
year even though the 1998 settlements between the
states and the cigarette manufacturers have already
more than doubled the cost of cigarettes.
Warner’s
plan doesn’t adequately address the “structural
budget problems” he agonizes about.
State spending is projected to grow much
faster each year than Virginia’s economy will
grow. Warner’s
one-time tax hike won’t solve that problem.
To
deal with our structural problem, we have no choice
but to examine the factors, such as Medicaid, prison
operations and public education, that drive this
spending growth. Spending
reform should be a higher priority than tax reform.
Even with a recovering economy, Warner
announced two weeks ago that Virginia faces a $1.3
billion budget gap for the coming biennium.
That means the state anticipates collecting
$1.3 billion less than it expects to spend on
current programs during the 2004-2006 biennium.
The
notion that we have cut to the bone is nonsense.
Fundamental program changes that have a
profound impact on future spending are what are
needed. This
will be politically painful, but far less painful
than the adjustments Virginia taxpayers must make if
fundamental changes aren’t made.
--
December 1, 2003
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