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