Bacon's Rebellion

Democracy Thrives in Sunlight

Time for Rollback on State Taxes

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by

James A. Bacon
in

With the revelation that Virginia is running another gigantic surplus, the debate over the budget and taxes is heating up again. The terms of debate, as I argue in this week’s Bacon’s Rebellion, have shifted decisively in favor of the low-tax advocates.

Last week, Jerry Kilgore argued that the surplus proves that last year’s tax increase was not needed. Now the House of Delegates is in an uproar. As Michael Hardy sums up yesterday’s developments in the Richmond Times-Dispatch: “Some House Republicans, still smarting over [Mark Warner’s] success in winning passage of a record $1.4 billion in tax increases last year, renewed cries that the package was unnecessary because of substantially higher-than-predicted rates of state tax collections.”

House Appropriations Chair Vincent F. Callahan, R-Fairfax, estimated that the state will have an extra $500 million at the end of the fiscal year — presumably over and above the $900 million or so surplus that the Warner administration had anticipated back in December/January and the General Assembly spent, mostly on transportation.

Del. R. Steven Landes, R-Augusta, was particularly harsh in his criticism of the Warner administration: “You all have the worst record of any administration,” he told Finance Secretary John Bennett at a House hearing. Del. Leo C. Waldrup Jr., R-Virginia Beach, characterized Warner as acting like “Chicken Little” about state finances.

Bennett conceded that the state needed to improve its forecasting ability. But the issue really isn’t the Warner administration’s forecasting record. Forecasting is inherently a hit or miss proposition; no one is very good at it. Warner’s mistake was justifying tax increases based on six-year projections that a long-term, structural budget deficit would leave Virginia unable to meet core obligations. Long-term forecasts are even more uncertain than short-term forecasts. Moral of the story: Don’t increase taxes on the basis of shortfalls that might materialize some hazy time in the future.

Virginia never needed the 2004 tax increase. It’s time to talk rollback.

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Comments

  1. Barnie Day Avatar
    Barnie Day

    Jim, the flat-Earth ship sailed off the edge of the world a week ago and, no doubt, are still falling. With a good speedboat, you may be able to catch them.

  2. Will Vehrs Avatar
    Will Vehrs

    Used to be that a “Flat Earther” was one who believed in 2004 that Virginia would grow its way into budget balance.

    Now that those “Flat Earthers” have essentially been proven correct, the new “Flat Earther” is one anyone who thinks that this gusher of tax revenue isn’t a looming disaster, being as it’s so “volatile,” there are so many “bills in the drawer,” and there are so many “unmet needs.”

    I have never criticized the budget deal of 2004, or the 17 House members who made it happen. Someone had to break the stalemate. But now that we see what growth on top of the tax increase has wrought, a little hubris is in order for those who claim to be so far above the “Flat Earthers.”

  3. John K. Avatar
    John K.

    Who can afford a speedboat these days with all these personal property taxes?

  4. Anonymous Avatar
    Anonymous

    Since when is a budget supposed to fund 100% of needs?

    Should the GA have written a budget that addressed 100% of “needs” and then had a 500 million dollar shortfall? (Just a numerical guess, not based upon data.)

    Or should they write a budget fulfilling as many needs as possible without breaking the bank.

    Anyone who says all needs have been met simply because the budget has been met is in dreamland.

    I meet my household budget every month, but I haven’t bought new shoes in 3 years. Does that mean I don’t NEED new shoes. Nope. Just that I don’t have the money for them.

    (I personally believe that the state funds too many “wants” with the budget and miserably fails to fund many “needs.” Nonetheless, a fully funded budget does NOT, in any way, mean all needs are funded.)

  5. Paul Avatar
    Paul

    Road maintenance funds overwhelm transportation fund by 2018

    Use the surplus to shore that up.

    Plus some property tax relief.

    Plus restore money to the rainy day fund, continue to fund the bay cleanup

    But most of all – chill out. The VA economy is probably hotter right now that it’s ever been in the history of the state. You’re taking some cheap shots at Warner.

  6. Jim Bacon Avatar
    Jim Bacon

    SDH4VBT, You are right: No one anticipated the size of the current General Assembly surplus. But a number of people did predict that economic growth would produce enough revenue to fund the spending increases that Gov. Warner was calling for. And that’s a fact.

    You are quite right to distinguish the General Assembly budget from the transportation budget. The revenue streams are entirely different. It’s possible to make an intellectually respectable case about the need to increase transportation funding. I don’t disagree that a cash crunch is coming for the transportation fund (although I would like to take a closer look at the assumptions underpinning the numbers). My problem is the seeming unwillingness to entertain alternatives to pouring 99 percent of the money into roads and transit, and the dogmatic refusal to consider land use reform as part of a long-term solution.

    If there is a coming funding crunch in transportation, why is everyone so insistent about pursuing the most expensive solutions?

  7. Jim Bacon Avatar
    Jim Bacon

    Barnie, speaking of the “Flat Earth Society,” you might want to read Thomas Friedman’s book, “The Earth is Flat.” The earth isbecoming flat in the way that technology is creating a level playing field globally. The book cover even shows sailing ships (manned by Republicans?) falling off the edge of the earth. In my next column, I’ll explore what policies it will take for Virginia to remain competitive in a global economy. Do you think that tax rates might be one part of the mix?

  8. SDH4VBT Avatar
    SDH4VBT

    So many mistakes to correct, so little time. First the Transportation Trust Fund is 78 percent roads, 15 percent mass transit and the rest port and airports, so it ain’t 99 percent roads. The way folks get around that is to run up debt for roads, since debt comes off the top. There is plenty of room to discuss that formula, alhought expect a spririted debate.

    Second, I suspect the “build more highways” solution has been chosen most often because it is the least expensive per passenger mile in the long run, that and the way politicians are eager to put their intials in wet concrete between elections.

    Third, show my your proposals on land use planning. I heard last night about plans to put 6,000 houses at the Ladysmith exit on I-95 and that is going to cause congestion north and south and everybody knows it. Give me a free market, property-rights respecting, proposal to challenge the trends and it will get serious discussoin. So far all I’ve seen is utopian hand-wringing.

    Enough for now.

  9. James Atticus Bowden Avatar
    James Atticus Bowden

    Economic estimates are estimates, but they can be pretty good. What models does the Sec Finance use? What is the methodology? When Alan Greenspan talks about ‘surprising’ this or that, he refers to marginal increases or decreases that are off their macro-economic models, not ‘bolt from the blue’ mysteries. It is economics, Watson.

  10. James Young Avatar
    James Young

    Barnie’s comment is glib; unfortunately, it lacks the basis in fact to make it truly funny.

    ‘Course, I wonder if there are others that Barnie would call “flat-earthers”?

    Weren’t Conservatives who predicted a bloodbath in Southeast Asia if we pulled out of Vietnam “flat-earthers”?

    Weren’t Conservatives who were defending definitions of the traditional family in federal litigation 30 years ago — warning that it was the beginning of the assault on traditional marriage — “flat-earthers”?

    Wasn’t Ronald Reagan a “flat-earther” for suggesting that a muscular posture toward the USSR might topple that regime?

    Wasn’t Ronald Reagan a “flat-earther” for suggesting that reducing the top marginal tax rates would explode growth and federal tax receipts (which more than doubled over his term of office)?

    Yeah, those “flat-earthers” sure don’t know what they’re talking about.

  11. Anonymous Avatar
    Anonymous

    Aren’t these the projections for tax collections with the 2004 increases? I would be interested in knowing what the collections would be today without the tax increases of last year.

  12. Anonymous Avatar
    Anonymous

    I imagine no one was more upset with those numbers than Gary Reese

  13. Waldo Jaquith Avatar
    Waldo Jaquith

    Better too much money than too little. We tried the latter. It didn’t work so good. We can adjust accordingly next GA session.

    What’s the problem again?

  14. James Young Avatar
    James Young

    Okay, Waldo. I’ll bet you a dollar that the “adjustment” that is made is spending the money, not giving it back to the people who earned it.

    The problem is that it didn’t need to be taken in the first place. And once it’s been taken, it almost certainly won’t be given back.

  15. Anonymous Avatar
    Anonymous

    Anonymous 1:14 PM: Yes, the revenues include the 2004 increases. In Bennett’s letter he states that for May, the over growth of 23 percent would have been 19 percent absent the tax rate increases. I assume the ratio for the year to date is about the same, and instead of 15 percent it would be about 11. Sometimes

  16. Dry Throat Avatar
    Dry Throat

    Nice post. I love my Bacon’s Crisp.

    As for the huge windfall in the state tax coffers it will go black just like the Rockingham Operation. Scott Ritter is not around to talk about the W.M.D. (Warner Money Deficit) because we have no idea where the W.M.D. (Warner Money Deposit) really is.

    Operation Rockingham cherry-picked intelligence for the United Nations and mislead the US media, while Operation Warner has cherry-picked budget forecasting for the Commonwealth and mislead the General Assembly.

    Scaring the “living barnie-daylights out” of Virginia with a AAA bond rating threat! Quite frankly, that’s flat-earth logic by slope-headed democratic goobers.

    Where’s my state refund check?

  17. Waldo Jaquith Avatar
    Waldo Jaquith

    Okay, Waldo. I’ll bet you a dollar that the “adjustment” that is made is spending the money, not giving it back to the people who earned it.

    Duh.

    I used to run a membership-based 501(c)3. We had about two dozen members, each of whom paid dues each month. One month, we screwed up our estimate for the month, and had a couple hundred extra dollars. I guess I could have sat down and written checks to each person for a few dollars, but that would have been a waste of time. Instead, we used some of that money to pay down a little debt and reduced everybody’s dues the following month.

    Why we’d do otherwise on a state-level, I can’t imagine. Taxes and the budget aren’t a one-shot thing — it’s constant. If we screw something up this time, we fix it next time around. I figure anybody who advocates giving the money back should also favor instituting a special one-time tax when there’s a revenue shortfall.

  18. Dry Throat Avatar
    Dry Throat

    It appears that Warner’s tax program should be called WMD (Warner Money Deficit) which could be identified as a secret ‘dirty tricks’ operation meant to specifically produce misleading tax debit and credits. We can call Warner tax program a weapon of mass destruction in order to justify an excuse to raise more taxes. We can call Warner’s tax initiatives Operation Richmond.

    Warner and his associates can be called the “cherry pickers.”

    Analyzing Warner’s action does not indicate that there are rogue agents acting without his support. Warners policies come from the very highest levels within the Virginia State government. Despite warnings from the republicans and democrats Warner distorted information in order to convince the legislature and the taxpayers the necessity to raise taxes even though he doesn’t hold to every crystal ball he sees, because pundit Larry Sabato is on his payroll.

    Warner has lied and consistently manipulated the numbers to further his socialist agenda. There are a select number of ideologues both in the state of Virginia and the Bilderberg crowd that Warner has been swayed by without knowing what truth and reality really includes. Warner takes bits of budget information to support his agenda and ignores anything contrary.

    The truth has to be told.

    We can’t allow him to continue to use bogus information to justify tax increases.

  19. Ray Hyde Avatar
    Ray Hyde

    there is no evidence that changes in land use will reduce the need for transportation.

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