Why raising taxes is not the solution for Virginia

The actions of the Virginia legislature and Governor McDonnell over the past month and a half have reignited a debate on the right about taxation levels in Virginia. While I myself do not welcome the efforts to raise that level of taxation, I do appreciate and welcome the debate. The arguing of ideas is always a healthy thing if done in the proper spirit. That said, tax arguments are always the most difficult, in part because too many people on either side close down the discussion at the wrong time.

Those who read my posts (here and elsewhere) know that I am highly – and almost completely – skeptical of any effort to raise the level of taxation on Virginians and their fellow Americans. Unfortunately, most also presume that’s where my thinking (and the thinking of those who agree with me on the subject) ends. This is in fact the exact opposite of reality. For too long, proponents of tax increases (and many opponents of them) have assumed that the phrase “No New Taxes” ends the conversation. This myth was largely driven by former President George H. W. Bush, who famously uttered, “Read my lips: no new taxes.” Two years later his lips said something else, of course, but more to the point, it was meant (and perceived) as an argument finisher.

In the quarter-century since that rhetorical flourish, however, it has become clear that within the no-new-taxes crowd were those who came to this position after careful examination of economics and politics; I count myself as one of these people. That said, we have tended to be lax about explaining why we hold this view, thus risking the very premature ending to the discussion that we should avoid.

So, why do we (and by “we”, I mean the above group, not the BD blogging roster) oppose tax increases, including the one cobbled together Wednesday in a Richmond conference committee? Our reasons are as follows:

Economic: One of the more common axioms about taxes is this one – if you tax something, you’ll see less of it. This explains the damage taxes do to consumption, but it also refers to production. Taxes are a cost to business, and anything that increases business cost leads to (1) higher prices, (2) fewer jobs, or (3) a combination of the two. The economic damage that results not only hurts Virginians’ incomes, it also reduces the amount of income or consumption to be taxed, thus eroding the effect of the tax increase in the first place.

Political: When governments seek to match revenue to expenditure, they either (1) raise the former, (2) reduce the latter, or (3) a combination of the two. Generally, most politicians claim to desire #3. The problem with that is the time difference between tax increases (which usually occur right on July 1) and spending cuts (which take until next June 30 to be fully implemented – and that’s just in the first fiscal year). With multi-year fiscal consolidations, the tax increases traditional fall short (in many cases, well short) of projections (for reasons noted in the above paragraph). The result is usually a new consolidation plan with even more immediate taxes and delayed spending cuts.

Finally, Budgetary: The benefits of reviewing spending plans are three-fold: efficiencies within services can be found; priorities can be set about what services should and shouldn’t be government’s responsibility to deliver; and the method of delivery can be reformed. Tax increases negate both of these by obscuring the need for them.

Now, these are, of course, high-level, theoretical reasons. They would be applied differently to each situation. In the case of Virginia’s transportation debate of 2013, however, I would humbly submit that the first and third certainly apply. Given that GDP contracted last quarter, this is hardly the time to make things worse. Meanwhile, the state budget has gone from roughly $45 billion (biennial) in 2000-02 to approximately $90 billion (biennial) today. This is hardly a sign of a frugal government that spends its money with attention to detail.

Moreover, within transportation funding, there are serious disconnects in Virginia. Local decisions on land use are causing increases in statewide funding, creating the most unusual of events – an upstream unfunded mandate. One cannot help but look at subdivision streets in particular and wonder why every taxpayer from Lee County to Loudoun to Lynnhaven is obligated to pay for them. This is just one example. Yet truly deep and broad reforms are being shunted aside in this debate, as tax-increase proponents seek to just apply more money to the wound in the hope it heals.

From my perspective, that is hardly the courageous or intelligent choice.

In the end, the legislature will decide on the fate of the tax increase. However, if it is defeated, those of us who have opposed it do not intend to stop discussing this issue. Our transportation system is dysfunctional, calcified, and in most places, overcome-by-events. What tax increase proponents need to understand is that (1) we see this as much as they do, and (2) contrary to their opinions, we believe raising taxes won’t solve the problem, but merely hide it, thus making it worse.

If anything, it is adopting the tax increase that would short-circuit the conversation, not defeating it.

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