Patrick McSweeney


 

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

 

Bring Home the Bacon

Help   About search

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contact Information

 

McSweeney & Crump

11 South Twelfth Street
Richmond, VA 23219
(804) 783-6802

pmcsweeney@

   mcbump.com