Fiscal Crisis Pending: Quick, Raise Taxes!

James A. Bacon

17 years ago

Virginia faces a $1.2 billion budgetary gap in the next two-year budget, warns a new report by The Commonwealth Institute, “The Other Side of the Coin,” and the reason is… no, not soaring government spending that has boosted state spending by 51 percent between FY 2003 and FY 2008… no, not anything done during the Warner or Kaine administrations… it’s the Gilmore-era car tax relief!

States a press release summarizing the report:

The current budget deficit is not due to out-of-control spending, but is instead due to inadequate revenue policies. State spending has increased only an average of 3 percent over the last 10 years, once inflation and population growth in the state are factored. In addition, Virginia continues to lag behind the rest of the country in several key spending areas, including education, health care and mental health, despite having one of the highest per capita income levels in the country.

So, state spending has increased “only” three percent annually for 10 years — that means it’s “only” 30 percent bigger than it was during the Gilmore administration, adjusted for population growth and inflation.

I do agree with one finding of the report: Lawmakers have undermined the tax base by handing out tax breaks like candy. The report specifically mentions the state tax repeal and conservation tax credits, which it estimates will cost $260 million a year, but the problem is much, much bigger. Gov. Mark R. Warner highlighted the problem back in 2003 (or thereabouts). The problem has only gotten worse since then. The corpus of the 2007 state tax code is riddled with more holes than Bonnie and Clyde.

For the latest extravagances, you need go no farther than the Secretary of Finance’s home page, which touts, “Governor Kaine, General Assembly Pass New Tax Relief Legislation.” Aside from increasing the filing threshhold for the state income tax, 2007 measures include: (1) breaks for energy-efficient appliance purchases and the use of alternative fuels; (2) a sales-tax holiday for purchases of home generators in preparation for hurricane season; and (3) an exemption for expenses associated with organ donation.

So, what’s the Commonwealth Institute’s solution? Close the tax loopholes? Rejuvenate the efficiency-in-government reforms of the Warner era? Set different budgetary priorities? Seek innovative solutions to public needs? Push for Fundamental Change in human settlement paterns? No, no, no, no, and no. What we need to do is increase general taxes. Of course, the Institute doesn’t say that explicitly. Here’s what it says: “Policymakers should embrace a long-term solution that stabilizes state revenues and restores a balanced budget.” Got that? We need to “stabilize state revenues” — stabilize them at a higher plateau than they are now.