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1/30th
of a Loaf...
is
better than none. Gov. Warner's one-time, $28
million tax give-back is welcome, even though it's
increasingly evident that his $1.5 billion-per
biennium increase was never called for.
On
August 23, Virginia Gov. Mark R. Warner announced
that he will use part of the state’s $324 million
budget surplus to give taxpayers an
earlier-than-expected increase of $100 in the
personal exemption for state income tax purposes.
That accelerated tax break will cost the
state $28 million in lost revenues.
Taxpayers
had to view this news with mixed feelings.
We are grateful, of course, for any tax break
that comes our way, but this break is pitifully
small next to the huge tax increase we began paying
this year.
Let’s
give Warner some credit.
After all, he did acknowledge that taxpayers
deserve relief. He
could have proposed using the entire surplus for new
spending programs.
What
was galling to some legislators, however, was that
Warner made it appear in announcing the acceleration
of the personal exemption that it was his
initiative. In
fact, it was required by the General Assembly.
Warner even proposed an amendment earlier
this year to relax that statutory requirement so
that surplus revenues could be used for purposes
other than tax relief.
His amendment failed.
Warner
has urged restraint in projecting state revenues.
In general, that’s a good thing.
The temptation to justify higher spending by
adopting the most optimistic economic forecasts as
the basis for projecting state revenues is difficult
for politicians to resist.
A
distinction should be made between using
conservative revenue projections as a way of holding
down spending and using a conservative projection to
justify a tax increase.
The former is fiscally responsible and
restrains spending. The
latter obviously results in higher state spending
and is an unwise approach to budgeting.
The
more prudent course for the Governor and the General
Assembly would have been to acknowledge the fact
that Virginia’s economy was expanding during the first half of
2004 at a rate higher than that of almost all other
states. Even
if the official revenue projections weren’t
adjusted upward at that time, elected officials
should have deferred all or most of the permanent
tax increase until the economic picture became
clearer.
A
number of legislators argued against the $1.5
billion biennial increase in state taxes because
revenues were already coming in far ahead of the
Governor’s projection.
Those appeals fell on deaf ears.
In
light of the news of such a large budget surplus for
the period that ended on June 30 — just weeks
after the tax increase was approved — the decision
to raise taxes or to raise them by $1.5 billion over
the next two years is difficult to justify.
That action now seems premature and
precipitous.
Warner
continues to insist that the tax increase was
essential to preserving Virginia’s triple-A credit rating.
A tax increase wasn’t the way to deal with
the Commonwealth’s budget problems.
California, of all places, has followed a far
better course recently.
After
declining to raise taxes, California this past week saw its credit rating improve
substantially principally as a result of spending
cuts. California
Gov. Arnold Schwarzenegger proposes to continue this
kind of budget discipline, while reversing state
policies that discourage business location and
expansion in his state.
His recipe for getting California
out of its budget mess is to bolster that state’s
economy and thereby maximize state tax revenues
without increasing taxes.
That’s
also the best formula for Virginia.
--
September 7,
2004
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