Transportation Tax Issue Still Fermenting

Richard W. Rahn

Citing his opposition to transportation-funding legislation supported by Governor Bob McDonnell, Richard W. Rahn has resigned from the governor’s Joint Advisory Board of Economists.

“I strongly disagree with the new tax/transportation bill that you supported,” wrote Rahn in a letter to McDonnell. “Unfortunately, I was not asked for my advice (which I assume was also true of the other Joint Advisory Board members) before you and the legislature embarked on passing the largest increase in taxes in the history of Virginia.  This action will do damage to the people of the Commonwealth of Virginia.”

The hike in the sales tax should have been offset by a reduction in the state income tax, which Rahn described as “perhaps the most destructive tax.” He added: “A number of other Republican governors are supporting major rate cuts in their state income taxes, and in several cases proposing to totally eliminate the state income tax.  Virginia should be doing the same.”

Virginia should more aggressively seek private-sector funding for transportation infrastructure as well as privatization of “other functions now performed by the state.” He offered no specifics.

Rahn, former chief economist for the U.S. Chamber of Commerce and currently a senior fellow with the libertarian-leaning Cato Institute, said he would be willing to assist in a “serious effort” to reform the Virginia tax structure…. Not that he’s likely to be asked at this point.

In related matters, McDonnell and his staff are conducting a “legal and constitutional review” of the transportation bill. As Willie Deutsch highlighted on his blog, the governor had this to say in last week’s “WRVA’s Ask the Governor” radio show:

“I’m still conducting a legal and constitutional and review of the bill. We haven’t even gotten the bill yet. It’s over 100 pages.” (14 min mark)

“It is 100 pages. It will undergo review, legal review and constitutional review by the attorney general’s office, policy review by my office. …It’s only been five days since the session is over. We just got it. We’ve gotten over 900 bills to review.” (23 min mark)

Review by the AG’s office? Holy, moly! McDonnell did not specify the constitutional issues in the tax package, but presumably he was referring to a  provision that would have generated taxes for regional use by imposing taxes in Northern Virginia and Hampton Roads. (Paul Goldman and Norm Leahy described the state constitutional issues here.) It would be quite a development if Ken Cuccinelli got the final say on this key piece of the legislation!

– JAB

5 Responses to Transportation Tax Issue Still Fermenting

  1. I respect Dr. Rahn’s decision. It was pretty much pre-ordained, I guess. Rahn developed the Rahn Curve.

    http://en.wikipedia.org/wiki/Rahn_curve

    The curve suggests that 15 – 20% of GDP is the optimal level of government spending. We haven’t seen that low a level of government spending since 1940 in the United States.

    Right now, total government spending is about 40% of GDP.

    Gabon, El Salvador and the Ivory Coast all spend about 20% of GDP on government. Bangladesh, the Central African Republic and Paraguay all spend around 15%.

    The lowest percentage for a developed country (from a quick glace at the list) appears to be Australia at 34%.

  2. After I realized that of the 50 states only 2 have no sales tax and no income tax and I wondered how they pay for services.

    Alaska is one – and they have benefited greatly from oil but it’s winding down.

    the other is New Hampshire which is worth Bacon exploring a little.

    For instance, how doe NY pay for schools if they don’t have sales or income taxes?

    well guess what – they tax property – not once – but twice. The local level taxes it then the state taxes it. The state has some kind of a sliding formula per county but it roughly ends up being about twenty-five cents per hundred – which would be 1/4 or 1/5 or so the total tax rate that many counties in Va levy.

    I not sure how the allocate it … and also not sure how NH pays for things like state troopers and other state level agencies….

  3. Every bill goes through a legal and constitutional review at the AG’s office after passage but before the Governor decides whether to sign, veto or amend it. Every bill. SOP.

    Chief economist for the US Chamber of Commerce? Really? Yet he knows so little about the state legislsative process that he expects a select conference committee working incognito, on a killer deadline, to stop, pause, and call a bunch of economists in for a consult? No my man, that is what Congress does and look how that works out for them….they did all that and we got Obamacare. I’ll take the Virginia way.

  4. Just curious on the AG review process. Has there ever been a law passed by the GA then declared unconstitutional before it could get to the Gov for Signature?

    has that ever happened before? surely it has, right?

  5. The transportation tax plan that is on its way to Virginia Governor McDonnell, says that anybody selling lands, tenements, or other realty located in Fairfax County, Loudoun County, Prince William County, Arlington County, and Alexandria, will have to pay an additional 25 cent per $100 tax, when they finally get disgusted with this nonsense, and try to sell their homes, businesses, etc, and move away from here.
    http://herndon.patch.com/blog_posts/say-what-thanks-to-the-virginia-transportation-bill-it-will-cost-me-more-to-sell-my-house

    http://lis.virginia.gov/cgi-bin/legp604.exe?ses=131&typ=bil&val=hb2313&submit=GO

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