Bob McDonnell: tax hiker (UPDATED – still a tax hiker, but not as much)

Well it was fun while it lasted.

Two years after the Virginia Republican Party finally freed itself of the tax-hiking label that cost it elections in 2005 and 2007, less than one year after Bob McDonnell rode opposition to tax increases to lead the best Republican year in the history of the Old Dominion, McDonnell himself is about to blow the whole thing sky high today.

Here’s the damage report from the surprisingly subdued Washington Post (I suppose the giddiness will be saved for the editorial page):

Gov. Robert F. McDonnell (R) will unveil a proposal Wednesday to impose a 4 percent tax on restaurants and bars as he tries to make up for $260 million the state could lose in taxes and profit if Virginia privatizes its liquor system, according to several sources familiar with the plan.

Included in the 4 percent is a 2.5 percent tax imposed solely on restaurants’ annual liquor receipts and a 1.5 percent tax imposed on restaurants and all stores that sell alcohol, including grocery stores (UPDATE-RWL NOTE: the latter is nowhere to be found in the Governor’s proposal; it may have been dropped). Together, they will bring in about $40 million, sources say.

McDonnell’s proposal also includes other fees, including a $17.50-per-gallon excise tax and a 1 percent tax on gross receipts, both charged to wholesalers, said Sen. Mary Margaret Whipple (D-Arlington), who was briefed on the plan late Tuesday.

Not one, not two, not three, but four two new taxes proposed in one day – this from the man who promised all of us he wouldn’t raise taxes (although his refusal to sign the Taxpayer Protection Pledge takes on a more poignant meaning). One of the taxes (the 1.5% tax) is tangential at best to the alcohol-privatization plan (which is not the subject of my rant here; the state should not be in the liquor business). UPDATE: As noted above, this one appears to have been left on the cutting room floor.

Already, restaurants are wondering what hit them (see Randy Norton’s quote in the WaPo piece). Thankfully, Delegate Tom Gear – one of the most consistent defenders of the taxpayer in Richmond – has put up the red-flag on this (end of same piece).

UPDATE: The McDonnell Administration played some “linguistic ledgerdemain” with the 2.5% receipts tax, calling it an “optional convenience fee.” The “option” however, is solely the option to sell liquor. “Convenience fee” my foot; that’s a tax. FURTHER UPDATE: As I noted here, the option is to avoid buying from retail stores, and paying the 5% retail sales tax that comes with it. That’s more like an offer they can’t refuse, and as far as I’m concerned, it’s still a tax.

The 1% tax is being called a “wholesale license charge.” Riiiiiiiiight.

The $17.50/gallon tax is trickier, because it actually replaces a 20% liquor tax. Nice to see the WaPo had no idea about that one. Still, McDonnell is expecting $175.7 million from the new tax, well over the $111.4 million the current one generates. The Governor’s people say they expect higher sales, but their own “license charge” number anticipates sales of $710 million. The current tax would bring in only $142M under that scenario. So this isn’t a new tax, but it is a tax increase. FURTHER UPDATED: I goofed on this one. The $710 million is for wholesale, not retail sales. The retail figure is $887.5M, making the current tax take $177.5M. This is not a tax increase. Mea culpa.

The damage from this will be on several levels.

Economic: what was it Doug Wilder said again last year? Ah yes, “This is not the time in our Commonwealth to talk about any tax increase” – and that was last September, when it was assumed recovery was on the way. Now, recovery’s in a race with “double-dip” recession to claim 2011. If anything, the last twelve months have made tax increases less justifiable. Moreover, whacking restaurants has the added pleasure of indirectly hurting tourism expenses. All of this, mind you, is coming just as the Obama Administration is preparing to slam small businesses of all stripes with the reversal of the Bush-the-Younger tax cuts.

Finally, they will make the privatization of alcohol a much harder sell, and increase the likelihood that the birthplace of American liberty will remain one of social democracy’s unlikely redoubts in the hard liquor department.

Political: Doesn’t anyone in the McDonnell Administration remember 1990? That was the year President Bush the Elder broke his “read my lips” pledge on taxes. Before he broke his word, there was talk of the Republicans breaking the 36-year lock on Congress, and at least one poll had the two parties at parity in voter identification for the first time since World War II. After the betrayal, the Democrats hammered the GOP, held their lopsided Congressional majorities, and voters drove Bush out of office in 1992 (his 38% remains the worst performance by an incumbent President outside of the Taft-Roosevelt split of 1912). McDonnell will do less damage nationwide – he is only the Governor of Virginia – but I wouldn’t want to be Morgan Griffith, Keith Fimian, or Scott Rigell right now. All of them could see whatever chance they had at victory slip away. Even Robert Hurt could see defeat snatched from the jaws of victory.

Don’t believe me? Senate Majority Leader Dick Saslaw called this a tax “on people drinking alcohol” (WaPo) before the details were even leaked. He knows he won his majority by watching the GOP drown under tax increases. He’s already partying like it’s 2007.

So, in short, these tax increases are an unwelcome burden to the quest for a more limited government in the Commonwealth, bad for Virginia’s economy, and terrible for the Republican Party.

Perhaps we should have seen this coming with the manufacturer’s tax increase.

Cross-posted to RWL

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  • James “turbo” Cohen


  • I don’t see any of these taxes getting through the GA.

  • But it says in the press release that:

    There is no tax increase in the privatization proposal

    Surely we are missing something, right? 🙂

  • VaBchRavensFan

    Raise our taxes and you will find yourself looking for a new job come next election!

  • Mike Barrett

    Now we know why McDonnell began his PR and Promotion campaign before he released the study and the analysis of the business case. Fact is, the business case just did not work, so he needed to come up with new and different taxes to make his plan work.

    Well, that creates other issues, and one has to ask, why bother? Fact is, the sale of the ABC operation, and a one time infusion of revenue for one or two transportation projects are about as alike as oil and water.

    There is no nexus to transportation, and in fact, we need to deal realistically with the deterioration of our transportation infrastructure, which now exceeds $8,000,000,000, with increase in taxes and fees related to the use of the roads, tunnels, bridges, and highways. To do otherwise is simply to confuse the issue.

  • VA Blogger

    DJ, can you help me out with the 2.5% one? From the Governor’s proposal, it seems to me that a restaurant or bar would have two choices:

    1) Do as they currently do, which is buy from a retail store at marked-up prices and arrange delivery on their own.

    2) Pay the 2.5% fee, tax, whatever to buy from a wholesaler and receive a discount and have the product delivered to them.

    That is why its “optional”; the option isn’t to sell liquor, its to keep things status quo if they choose, or buy from a wholesaler for lower prices and delivery.

    From my understanding, option 2 is the most preferable for retailers, and generates more revenue for the state. From a philosophical perspective, should an option that benefits private businesses be opposed because it results in greater revenue?

  • kingsmoothie

    The government shouldn’t be in the liquor business. Make more cuts to compensate for lost revenue. If not, then the right place to increase taxes is on the liquor. It sounds like he is replacing inflated government monopoly prices with taxes (increased taxes?) on the sales of liquor by private organizations. Is the cost to consumers going to be higher? Are the tax increases applied to beer and wine too? Bottom line: what are the real increased costs to consumers?

  • SicSemperTyrannus

    “VaBchRavensFan says:
    September 8, 2010 at 4:08 pm ”

    Dudw. In Virginia, a governor can not serve consecutive terms, and are limited to two terms in a lifetime. Hate to burst your bubble, but re-election is NOT a factor.

    Another point, privatizing liquor stores will save the state money w/r/t salary and benefits for ABC store employees.

    Yeah, there’s an added tax. However, I believe (but cannot prove) that free-market competition will reduce total liquor expenditure for every consumer in the state.

    Just piling on with VABlogger and kingsmoothie.

  • Darrell — Chesapeake

    “what are the real increased costs to consumers?”

    It’s the risk that the ‘new’ GOP is nothing but the same old bunch that pushed abusive politics down the citizens throat in the past. Virginia doesn’t need my way or the highway republicans. We’ve been down that road and it led to a trash dump election cycle. Want to see the tea parties and independents jump ship? Kill their already shaky trust and watch what happens in November.

  • VAB,

    Excellent q, which I have address just now (see FURTHER UPDATE). As option 1 includes a 5% retail sales tax, option 2 is more an offer they can’t refuse.

    To be clear, I want the government out of the liquor business. IMHO, these tax increases make it harder to do politically, and provide less benefit economically (only $20M comes back into the hands of Virginians instead of $80M). That’s why I oppose them. I do *not* oppose ABC privatization.

  • VA Blogger

    I don’t get the knee-jerk opposition to the 2.5% charge, though. Yes, I agree that option 2 makes a whole lot more sense for bars and restaurants than option 1 does. However, option 1 is the current arrangement. So bars and restaurants are being presented with a significant upgrade in option 2, in spite of the revenue the state is generating from it.

    My confusion is how can this be bad for anyone, if bars and restaurants are getting a better deal? Your position seems to be “anything the state does that results in extra revenue generated is bad”.

  • steve vaughan

    I also would like to see the state out of the liquor business but this plan is DOA. I’d be surprised if half the Republicans in the House support it. Not so much for the taxes, although that will be a factor, but for tripling the number of retail outlets and allowing hard liqour to be sold in Wal-Mart and 7-11. I don’t know what the governor was thinking, that was never going to fly in Virginia.

  • I agree that a 2.5% tax is better than a 5% tax. That’s not the point. What is the point is that the 2.5% tax is itself unnecessary, and only included to bring this closer to “revenue neutral.”

    Keep in mind, this and the other taxes that irk me (and I’m not alone) total a mere $60M annually. We already have that much in undesignated surplus from FY10. It shouldn’t be hard to cut spending $60M and make this a clean get-the-government-out-of-the-liquor-business proposal.

  • VA Blogger

    Ok. Its just peculiar to me on this point to continue banging the drum of “Its a tax! Kill it!!!” when the 2.5% fee is 1) providing a service that restaurants and bars will love (lower rates plus delivery), and 2) is lower than what they’re currently paying. That is, its a reduction and everyone affected by it benefits. Sure, it doesn’t beat a free lunch, but some will tell you there’s no such thing.

  • The “fee” is not providing the service at all. It is supposedly to cover the service; that’s not the same thing.

    I agree that 2.5% is lower than 5%, but the optimal is still zero.

  • Mike Barrett

    Yes D.J.; we get it. For you, it matters not one wit that the current system provides some net revenue of $300,000,000 to the General Fund to support Education, Public Safety, Courts and Justice, and Human Services. For those who have signed the no tax pledge, no tax cuts are enough.

    We have seen what that attitude has done to our crumbling transportation system, and it appears that your view of general services of government is the same. As you say above…”It shouldn’t be hard to cut spending $60M and make this a clean get-the-government-out-of-the-liquor-business proposal.”

    So fire police officers, teachers, social workers, and court service personnel to make up the $60,000,000 shortfall. No problem. We have created third world conditions in transportation, why not in general services as well?

    So next time your child’s school building leaks, we’ll just post a sign; brought to you by the Governor’s tax cuts. Can we fit that on a bumper sticker?

  • J.M. Ripley


    Have you actually driven on a third world road?

  • Mike Barrett

    Yes, of course, I-264 between Virginia Beach and Norfolk.

  • Tim J

    Mike, go and buy a 4-wheel drive F-150 “Off Road” vehicle from Scott Rigell at Freedom Ford and you won’t even notice those “third world” road conditions. Scott can use the business, and by the way, we voters don’t agree with you and your transportation Cabal.

  • James Hawkins

    Lawmakers From States With Deteriorating Infrastructure Oppose Obama’s Infrastructure Investment

    Several Republican lawmakers are trying to claim that Obama’s $50 billion plan to invest in infrastructure is too expensive, at the same time that they’re pushing for an $830 billion tax cut for the richest two percent of Americans. If these lawmakers succeed in blocking the investment, they’ll definitively prove their deficit peacockery, while also perpetuating an ongoing neglect of the country’s infrastructure, which is rapidly deteriorating.

    According to the Army Corps of Engineers, it would take a $2.2 trillion investment to get America’s infrastructure into good condition, including $930 billion for roads and bridges and another $160 billion for schools. Here is the situation in some of the states where lawmakers have been resistant to Obama’s plan:

    Think Progress details seven states in which GOP opposition to the infrastructure plan would rob their home state of much-needed improvements, proving yet again that Republicans really do like cutting off their nose to spite their face.

  • James Hawkins

    Lawmakers From States With Deteriorating Infrastructure Oppose Obama’s Infrastructure Investment

    VIRGINA: Rep. Eric Cantor (R-VA) opposes the funding, while almost one-quarter of Virginia’s roads and bridges are in poor condition and there are 143 high hazard dams.

  • James Hawkins

    Key Infrastructure Facts

    * 26% of Virginia’s bridges are structurally deficient or functionally obsolete.
    * There are 143 high hazard dams in Virginia. A high hazard dam is defined as a dam whose failure would cause a loss of life and significant property damage.
    * 125 of Virginia’s 1,678 dams are in need of rehabilitation to meet applicable state dam safety standards.
    * 15% of high hazard dams in Virginia have no emergency action plan (EAP). An EAP is a predetermined plan of action to be taken including roles, responsibilities and procedures for surveillance, notification and evacuation to reduce the potential for loss of life and property damage in an area affected by a failure or mis-operation of a dam.
    * Virginia’s drinking water infrastructure needs an investment of $2.87 billion over the next 20 years.
    * Virginia ranked 29th in the quantity of hazardous waste produced and 20th in the total number of hazardous waste producers.
    * Virginia’s ports handled 60 million tons of waterborne traffic in 2005, ranking it 17th in the nation.
    * Virginia reported an unmet need of $1 million for its state public outdoor recreation facilities and parkland acquisition.
    * 23% of Virginia’s roads are in poor or mediocre condition.
    * 33% of Virginia’s major urban highways are congested.
    * Vehicle travel on Virginia’s highways increased by 36% from 1990 to 2007.
    * Virginia has $4.74 billion in wastewater infrastructure needs.

  • Mike Barrett

    Yes, we should post a sign at all the entrances to the Commonwealth. Welcome to Virginia: the deplorable roads brought to you by the Governor’s tax cuts.

  • James Hawkins

    Sigh, Glenn Beck says not to believe anything that he says. Research it yourself and make up your own mind.

    Do not believe everything that kos says either, research it.

    Hint, Welcome to Virginia, home of 143 high hazard dams.

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  • steve vaughan

    BTW folks, the difference isn’t between 2.5% and 5%. Bar currently don’t pay sales tax when they buy from ABC for re-sale. Of course, they don’t get a wholesale price, the pay the same per bottle that you do, or delivery either.

  • James Hawkins

    The devil is in the details.

    Blame Governor Bob McDonnell for the state of Virginia’s deplorable roads. OK.

    If you look at the Report Card for America’s Infrastructure, you will see “Survey of the state’s ASCE members conducted in September 2008”
    Who was governor in September 2008?

    Yes, we should post a sign at all the entrances to the Commonwealth. Welcome to Virginia: the deplorable roads brought to you by years of neglect by the democratic governors and democratic party of Virginia.

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