Rebel With a Cause

Paul Goldman


Save VA Dems from Moby Tax

Melville could have spun a whale of a tale out of Warner's tax plan. Unlike the Pequod crew, DEMS cannot let a fish story steal our soul, erode state finances and pin us with the High Tax label.


Call me Ishmael. I'd say that Gov. Mark R. Warner is sailing into dangerous waters.


Pressured by aides and editorial writers demanding a big spending program as a "legacy," the governor is setting himself up for Republicans to characterize him as the Captain Ahab of Virginia politics, obsessed with the Great White Whale, Moby Tax.


I say: Let this fish get away. Warner doesn't need a billion-dollar general tax increase to have a legacy. He needs to stop listening to Richmond insiders and especially the editorial boards, a prime example being yesterday's Roanoke Times. The scribblers from Big Lick have preached for years that it is anti-rural and fiscally irresponsible to do 100% percent car tax phase-out in our current financial shape, since it will cost another $600 million to $800 million the state doesn't have.


But suddenly, they have reversed course, now opining that if Warner doesn't do the full car tax Monte by 2008, the GOP will do it by 2006. 


This is not only wrong, but an indication that they are now more obsessed with Moby Tax than anyone could have thought possible. Why? The truth is, the budget cap I discuss below legally prevents the GOP from a 100 percent phase-out of the car tax in 2006, something the editorial boards might know if they bothered to read the law. Incredibly, Warner is proposing to eliminate this very cap, demanded in 1998 by Democrats to prevent Republicans from raiding education funds to gain political points by exploding the cost of the car tax program.


Warner knows he can not bust the budget with his own 2008 phase-out plan unless he scraps the cap. That's right: Warner, his eyes on the U.S. Senate like former Gov. Jim Gilmore, is proposing something he knows is fiscally reckless, something he and the Roanoke Times have long said would be wrong for Gilmore to do. True, it is politically popular. But Warner won an election attacking this kind of politics, saying it was killing the state's finances.


Think of it: Suddenly, the Roanoke Times editorial writers wants to do precisely what they begged Democrats not to let Gilmore do, what they would be forcefully opposing if a Republican Governor were proposing it. They know Warner's proposal all but guarantees a future raid on education funds to pay for the car tax program next time there's a dip in revenue!


But so desperate are they to pass a General Tax increase, they are willing to throw their fiscal principles overboard, even knowing it will make things fiscally worse in a few years.


OR: Having changed their minds, are they preparing their public apology to "Deficit" Jim Gilmore?  


In addition, the editorial boards also back Warner's reversal on the estate tax, saying his "compromise" is smart because otherwise the GOP will eliminate the Estate tax altogether.


Oh really? The GOP plan, vetoed by Warner just last year as "fiscally irresponsible," eliminated the estate tax for the 1786 families -- less than 2 percent of all Virginia families -- who paid it, according to the latest state data. What Warner calls his "equitable compromise" eliminates the estate tax for 1,773 of these families, or more than 99 percent! He leaves only 13 families paying the estate tax; but to keep them from feeling inequitably treated, gives each upwards of a $1 million windfall reduction in this levy.


If this is an "equitable compromise" please show me an "inequitable" one!


Let's tell it like it is: This is rank capitulation, done under the guise of making the tax code "fairer" when it does no such thing.


Truth is, if Warner and all the Democrats hold their ground as helped force them to do last year, they can sustain a veto of any GOP plan to eliminate Republican Teddy Roosevelt's estate tax, thereby stopping the GOP from creating yet another $300 million dollar future budget hole. Warner's aides are saying that his estate tax plan will cost the state far less than $300 million in the future. But they should know this is almost surely not true. 


Why? Because in 2011, only a few years away, federal estate tax law is scheduled to change for the benefit of states like Virginia. If Virginia estate tax law stays as it is -- and again, it only affects less than 2 percent of the wealthiest families in the state -- the Commonwealth figures to get $300 million a budget cycle at least. Since Warner eliminates the levy for almost all families, then clearly his plan will create yet another future budget hold, something he and the Roanoke Times campaigned against.


I ask you: What has happened to the Virginia Democratic Party's principles and willingness to fight for them?


Here is what Governor Warner said in vetoing the same basic irresponsible political promise last year:


"What is particularly unfair about this tax cut is that it is being proposed at the same time that college students are paying higher tuition at our state universities, the poor and mentally ill are facing curtailed social services, and programs that benefit all Virginians - ranging from parks to environmental protection -- are under-funded." 


True, it's tough standing up to powerful political forces. It's far easier to declare that you would have fought for your principles but you knew you couldn't win. The beauty of this argument: Who could prove otherwise?


So, it is time to fish or cut bait: In chasing the Great White Whale, Warner risks harpooning not only Virginia but his own party and, tragically, the gubernatorial prospects of every Democrat who doesn't have a $200 million personal fortune to outspend Republicans three to one.


Warner's aides say he had no choice but to advocate this billion dollar general tax increase to pay for the $2.4 billion in new spending he proposes for the two-year, 2004-2006 budget.


I urge legislators, Democrat and Republican, to consider this fact: A record general tax increase is not necessary to fund the governor's own spending proposals, as shown below.


Moreover, contrary to claims by Warner aides, the governor's plan (1) raises taxes on most Virginians in 2004, (2) busts the protective budget cap intended to prevent state education funds from being raided to pay for the car-tax program, (3) gives away $100,000 to $1 million estate windfalls to a handful of families, something the governor previously labeled unaffordable and unconscionable, and (4) guarantees more structural deficit erosion by back loading huge new budget costs that will raise havoc during the next economic downtown.


The Warner plan makes a bargain with the political devil: It raises $500 million in regressive sales and cigarette taxes disproportionately from vulnerable Virginians, mainly poor and rural, for the purpose of buying off more politically powerful interests. None of this money goes to educate children, support health care, create jobs, fight crime, or repair pothole-laden roads.


This devilish deal is why Warner needs to raise the sales tax by 22 percent, the cigarette tax by 900 percent, hide a 100 percent tax increase on some struggling senior-age Virginians, and remove a budget protection for education funds demanded by both parties in 1998.


Administration leaders say this is the price for a deal.

What deal? They have no agreement for anything. Instead, we have self-interested political capitulation, not enlightened negotiation. The governor proposes roughly $2 billion in new non-transportation expenditures and $400 million in transportation items, all to be paid from the General Fund.


Yet his own figures, appearing in the newspapers, show basically how you can fund what he wants without a general tax increase.


His budget conservatively projects over $1.2 billion in new revenue growth and about an additional $300 million in surplus and other carry-over funds from the previous budget. Historically, a bipartisan consensus of Republican governors and Democratic General Assemblies has agreed to pay for road maintenance with a user fee known as the gas tax. Several key House Republicans say they are prepared to return to this bipartisan approach, but the governor's plan did not include a gas tax because aides said it polled badly.


If Warner had taken the lead, Virginia could have gotten a four-cent gas tax for maintenance only. The modest levy would raise $400 million for the transportation fund, eliminating the need to transfer $400 million from the General Fund, the key source for education dollars.


Additionally, administration figures show that a combination of other actions could provide an extra $400 million to $500 million to spend. These include:


(1) closing corporate loopholes,


(2) delaying for now an adjustment of the accelerated sales tax program,


(3) passing a "K-12 first law" that puts his full car-tax funding on hold until fully funding education needs,


(4) reversing position on giving fiscally irresponsible estate-tax giveaways to the wealthiest families on the order of $100,000 to $1 million.


(5) forging a bipartisan agreement to raise the tobacco tax to a dime for a special smoker's health fund,


(6) reassessing the curious decision to put in the budget a pay raise two years before it will be paid, and


(7) cutting political and other unnecessary budget spending, such as the $500,000 lulu to the state's leading political pundit, and the incredible cost of the Legislative Department, now more than $800,000 per legislator.

This list doesn't even include those hidden pots of "money" that state politicians always "find" at General Assembly Session crunch time to fund popular programs.


Bottom line: Add this $500 million to the $1.5 billion and you can do more for education than the governor's aides said they realistically expected to get this year. Plus, it should allow continued, if not faster,  reduction of the food tax (something that's already on the books, so I don't want to suggest it is a new tax break). Why more? Because when Warner asked for $2 billion, that means he was hoping to get a compromise at $1.8 billion from the General Assembly.


The Virginia Education Association says it has to back Warner's tax-increase plan to get more education funding now. But as I showed above, there is no need to make Faustian bargain that will curtail future education funding. Warner's plan will drain an extra $600 million to $800 million and more per downstream budget cycle from the General Fund to pay for the 100 percent car-tax phase out. In the next economic slowdown, that money will come right out of the education budget -- at least, that's what the VEA has said when Gov. Jim Gilmore proposed it.


Have VEA lobbyists changed their position now?


Finally, as I have shown, by imposing huge transportation obligations on the General Fund, Warner's plan further crunches the main source of K-12 funding.


By raising the gas tax instead, you would get the $400 million for maintenance -- a good chunk paid by truckers and out-of-state motorists -- in a stable, traditional, user-fee revenue stream that doesn't compete with K-12 funding. (Sorry 'Til Hazel, et. al: No new roads with this user-fee money. It goes strictly for maintaining the roads and other transportation infrastructure we use now.)


All Virginians, especially those faithful to Democratic Party principles, should demand that their leaders produce a No General Tax Increase budget alternative for immediate discussion.


Virginia will be better for it, now and in the future, if we devise a fiscally responsible alternative. There is no reason to waste another year of opportunity chasing the Great White Whale.


-- January 5, 2004


























Paul Goldman, the Rebel With a Cause, was chief political strategist for the past two winning Democratic governors in Virginia and was credited with leading a "revolution in American politics" by The New York Times for his role in breaking America's 300-year-old color barrier in national politics.


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