Bacon's Rebellion

The House is Hanging Tough

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by

James A. Bacon
in

After the House passed a “compromise” budget, deferring the taxes and transportation debate so the business of government can continue without disruption, House Speaker William J. Howell, R-Stafford, released a statement making it clear that House Republicans feel no pressure from their constituents to raise taxes.

It has become very clear that despite the paid radio advertisements, the campaign-style robo-calls to people at home, and the various town hall meetings our new Governor has simply failed to muster public support for either his tax increases or those proposed by the Senate.

Our members have been in their districts for about a month, and they have not found support for the massive tax increases proposed by the Governor and the Senate. For example, House Appropriations Committee Chairman Vince Callahan [R-Fairfax] is the latest of several members who’ve done public opinion polls … to gauge support in their respective districts for the various transportation plans currently being debated.

What Delegates Callahan, Gear, Welch and most of our members are hearing from constituents is their wondering why tax increases are being considered when the Commonwealth is running a surplus of $1.5 billion.

On top of their concerns about higher state taxes, our constituents are expressing real anxiety over skyrocketing homeowners assessments, increasing energy costs, and already high gas prices that are rising, too.

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26 responses to “The House is Hanging Tough”

  1. Larry Gross Avatar
    Larry Gross

    How many Delegates go up for election in Nov?

    oh.. you say all of them…

    Time for a DUH moment.

    the choices are:

    1. – fall on your sword in Nov.

    2. – Thumb your nose at Kaine and the Senate; let VDOT twist in the wind for another year .. and maybe sneak back to Richmond in 07 to talk turkey about tax inceases.

  2. Craig Avatar
    Craig

    I would be willing to bet that those same House Republicans failed to explain to their constituents how under their plan VDOT’s budget would only cover the cost of road maitenance by 2010. The delegates also throw around the number $1.5 billion as if in the grand scheme of things that this is enough to magically fix all that ails transportation in Virginia.

    House Republicans are counting on apathy. They want to be able to go home and tell the voters that they saved them from the evils of higher taxes without having to explain that traffic is destined to get worse. The real shame is that they will probably get away with it.

  3. James Atticus Bowden Avatar
    James Atticus Bowden

    Delegates are up for election next Nov – 07.

    Craig: Higher taxes cost jobs. That is a significant evil. The Senate plan will kill over 5000 private sector jobs in year one. The House will shove plenty of money to fix transportation problems without raising taxes. The Senate Republicans haven’t made the case that more money equals better results. Traffic will definitely get worse with the what the Senate proposes.

  4. Craig Avatar
    Craig

    James: I am no fan of taxes. That said, there are times when they are required. The house plan does not raise taxes (fees are not taxes) but it does raise debt which can be equally odious.

    I have not seen the studies claiming that the Senate plan would lead to the loss of 5000 jobs and would be somewhat skeptical of those numbers. NOVA for example is at as close to 100% employment as is reasonably possible.

    I am pretty certain though that VA’s ever worsening transportation problems will have nothing but a negative impact on the state’s economic growth going forward. Neither Senate or House plan is adequate in addressing our transportation problems but I believe that the Senate’s plan is the lesser of two evils in this case.

  5. James Atticus Bowden Avatar
    James Atticus Bowden

    Craig: Check the Bacon’s Rebellion archives and you can get the url for the study.

    Ec 10. Taxes kill jobs. Taxes take capital out of the economy. Loss of capital kills jobs. Which is why the Kennedy-Reagan-Bush tax cuts created such job growth and wealth creation.

    You can believe anything you want, but economics is a social science, not theology – unless one is a Marxist. You can support a plan that is inadequate to address the problem, costs more and kills jobs, but it’s hardly the lesser of two evils.

  6. Larry Gross Avatar
    Larry Gross

    mea culpa for my election date mistake.

    I admit to being even less of a genius when it comes to economics but the statement that “taxes kill jobs” has always left me puzzled.

    If the state collects taxes and spends them on VDOT contractors to build roads – isn’t that also creating jobs?

    So… we don’t raise taxes and roads get built by private capital PPTA entitites that then charge user fees.

    In the case of roads – what would be the difference between collecting taxes for roads or charging user fees for roads?

    The difference to the taxpayer is the same – money out of his pocket – for roads.

    Is it obstensibly because the PPTA will spend the money more efficiently than VDOT?

    Is that the real issue?

    How about the reason why we need more money for more roads?

    If each taxpayer pays money – and we have population growth which obstenibly causes congestion – but don’t the new folks have to also pay taxes for transportation?

    So, money for transportation is NOT shrinking.. the more people we have, the more taxpayers we have and the more tax money is generated for roads.

    Is this true?

    How about the question – why are our transportation costs rising faster than our population growth?

    I think there are two dynamics at issue:

    1. – more fuel efficient vehicles use less fuel which means less gas tax collected.

    2. – more roads means more maintenance. The more you build – the more you have to pay to maintain them.

    So – don’t we have a fundamental structual budget problem with transportation that won’t be solved by one-time funding infusions from the GA?

    Isn’t that the essence of the debate in Richmond between the House and the Senate?

  7. Larry Gross Avatar
    Larry Gross

    Sorry for the long post – but it is an excellent article that well illustrates VDOT’s money problems.

    “Virginia’s motor fuels tax revenue has increased 13.8 percent since fiscal year 2000, but the Virginia Department of Transportation says it’s not enough to fully fund the Six-Year Road Plan.” (VDOT’s Financial Officer – Barbara Reese).

    This year’s working draft of the Highway Maintenance and Operating Fund calls for $221.1 million in reductions over the next five years primarily because of increased costs and projected reductions in gasoline tax revenue and other fees.

    “We have seen the prices that our contractors pay for highway maintenance and construction materials rise dramatically in the past 18 months — at least 10 percent or more — at the same time that revenues are not growing at the same pace

    In fiscal year 2005, about 85 percent, or $753.9 million, of the $890.6 million collected, was allocated to VDOT’s Highway Maintenance and Operating Fund.

    The latest forecasts for state transportation revenues are down $235 million for the next six years, Reese said.

    A March 16 memo sent by Virginia Secretary of Transportation Pierce R. Homer predicts an average annual state funding decrease of $160.3 million over the life of the program.

    Homer specifies that $134.8 million in state revenues will not be available for primary, secondary, and urban road systems in fiscal year 2007 and $362.2 million has been cut from the remaining five-year construction budget to address maintenance-related and asset management needs.

    “The major reason for this (decrease) is sharply higher asphalt, concrete, steel, and fuel costs,” Homer wrote. “As you know, increases in maintenance costs reduce funds available for highway construction.”

    http://www.winchesterstar.com/TheWinchesterStar/060413/Area_fuel.asp

  8. Jim Bacon Avatar
    Jim Bacon

    Larry, We hear a lot from the Axis of Taxes that the increasing fuel efficiency of the automobile fleet is a reason that Virginia’s fuel tax revenue has failed to keep pace with needs. But that’s simply wrong. The April 12 edition of the Wall Street Journal ran a graph on the front page, based on Environmental Protection Agency figures, showing that fuel efficiency peaked around 1986 at around 22 miles per gallon, and then plateaued, or even declined slightly, since then.

    There is more truth to your second speculation, that the increasing number of lane-miles in the state road system (new construction, acceptance of subdivisions into the system) is responsible. But even that accounts for a small part of the increase in costs.

    The rising cost of raw materials is undoubtedly a factor. It’s a fact: there has been considerable inflationary pressure in the price of concrete, steel and asphalt over the past decade.

  9. Virginia Centrist Avatar
    Virginia Centrist

    “Craig: Higher taxes cost jobs. That is a significant evil. The Senate plan will kill over 5000 private sector jobs in year one.”

    Any serious economist would laugh at this.

  10. Virginia Centrist Avatar
    Virginia Centrist

    That argument is barely worth addressing…but here it goes…..

    1. If you increase taxes, you take some money out of the economy. But…low and behold…the money doesn’t go into a black hole! It’s spent one something – in this case, road construction. Road construction doesn’t magically occur without workers, does it?

    2. If you buy the argument that in 20 years, the economy will be destroyed in NOVA by gridlock, and that building roads is the only way out – well, then the economy will be benefited by a tax increase….in the long run

    3. There are efficiencies in regards to letting people keep their money vs giving it to the public sector. But those efficiencies are so measily when you’re talking about this scale of tax increase, which will barely register on the public radar screen……it’s a near impossibility that this tax increase could effect the economy in even the slightest, particularly when you account for point #4:

    4. There is a point where tax state increases eventaully crowd busiess out of a state and make it advantageous for htem to move elsewhere. We’re not there. And guess what? We’re not even close. We’re one of the lowest tax states in the entire nation…

    5. The business community is clammoring for this tax increase! If anything, the fact that Virginia is addressing road needs will attract MORE businesses to the economy by signalling that Virginia doesn’t intend to just let it’s infrastructure rot.

  11. Larry Gross Avatar
    Larry Gross

    re: fuel efficiency and gas taxes.

    Yes the efficiency has not changed and does remain static but the fleet of cars – those older poor mileage ones replaced by newer more efficient ones are a factor.

    The rising price of gasoline is also a factor because the higher it goes the more folks will cut back on discretionary trips.

    Most states still experience increasing gas tax revenues at about 1 or 2% but most of them PROJECT net declines within a decade or less as gas prices continue upward AND newer technology cars with better
    mileage come onto the market.

    Most states are also very worried about the advent of PHEVs – Plug-in Electric HYBRIDs that will recharge with electricity at night thus extending the time on the road without having the motor switch over to gasoline.

    Some folks estimate that PHEVs when they come onto the market will get the equivalent of 70mpg
    or more.

    It may not happen but the betting is that it will – and the only question is when.

    If it does come to be – gas tax revenues could take a swan dive.

    I think the long-term prospects for the gas tax as a viable funding mechanism for roads is not good.

    If two choices are higher taxes and toll roads, I’d bet on the Toll roads before I would higher taxes but then again.. if I were
    so smart at predicting.. I wouldn’t be wasting my time using blog bandwidth. 🙂

  12. Jim Bacon Avatar
    Jim Bacon

    Larry, I do agree with you that the long-term prognosis for the gas tax is not good. We need to begin thinking about taxing cars and trucks on a Vehicle Mile Driven basis.

  13. Ray Hyde Avatar
    Ray Hyde

    Those older poor mileage ones replaced by newer more efficient ones are a factor

    I don’t buy it. My wife’s Jetta gets the same mileage as my Beetle did from 1965 until 1978, and it uses high test! Then there is the surge in larger vehicles. Where are the figures on actual fuel consumed? Can we possibly have filled the roads up with cars, have them sitting in traffic and actually burning less fuel? Doesn’t make sense.

    JAB:

    Whats the economic difference between losing 5000 jobs and paying for the equivalent number of non-productive hours sitting in traffic jams? And it is not just the people hours: with just in time deliveries the cost is also measured in cargo hours.

    I agree that tax increases affect jobs, but I think the figure you are using is too high.

    I own multiple vehicles that are seldom used, in order to make the most economic use of each one for the job at hand. If the state increases fees on insurance and registration I may have to re-think that policy. The end result will be that I probably keep and use the biggest truck in order to have that tool available when I need it. It’s capacity and fuel will be wasted on smaller jobs, but I’ll save on taxes.

    If I take those other trucks off the road, it will cost marginal parts of jobs for the tire repair guy, etc. But those taxes would have to be very burdensome indeed before it would affect my decision to keep or fire the hired help.

    I’m with Virginia Centrist here: you are technically correct, but probably oversold. As I remember the Reagan tax cuts, they were follwed by the highest rates of inflation ever. I don’t recall that was responsible for a lot of wealth creation: I was getting hammered on my mortgage 10.5% for several years before the rates dropped enough to refi.

    I could have gotten a 7% rate, except that my building permit was held up by the slow growth plan then in effect. The subsequent high interest rates probably killed a lot of jobs later, but since they weren’t in synch with the tax cuts, and were in synch with later tax increases, guess who got the blame.

    I think this is a lot harder than people are giving it credit for. But, when someone brings up the issue of growth control, for me it brings back memories of months and years of completely unnecessary financial pain, just because someone else thought they should have control over my plans.

  14. Larry Gross Avatar
    Larry Gross

    Ray – here’s the skinny on the gas tax from the horses (pick you end):

    “The latest forecasts for state transportation revenues are down $235 million for the next six years, Reese said.(VDOT’s financial Chief)

    The Virginia Department of Taxation’s revenue forecasters figured in November 2004 DMV will collect less than $890.6 million in fiscal year 2006 because less people will buy gas when the price per gallon averages $2.30.

    Forecasters say motor fuels tax collected through February are more than 2.6 percent ahead of the projected annual .4 percent decrease in revenue.

    A March 16 memo sent by Virginia Secretary of Transportation Pierce R. Homer predicts an average annual state funding decrease of $160.3 million over the life of the program. (the 6yr plan).

    Homer (Sec of Transportation) specifies that $134.8 million in state revenues will not be available for primary, secondary, and urban road systems in fiscal year 2007 and $362.2 million has been cut from the remaining five-year construction budget

    http://www.winchesterstar.com/TheWinchesterStar/060413/Area_fuel.asp

  15. Ray Hyde Avatar
    Ray Hyde

    Huh? The forecasts are down but the forecasted collections are up.

    The cost of cement is throught the roof because of demand in China.

    All I wanted to know is, are we burning more fuel or less? I haven’t found an answer but I did find a graphic that indicated fuel for auto use is flat, but fuel for aouto and light trucks (which I think includes SUV’S) is up. Fuel for heavy vehicles is up even more. So, if over all fuel usage is up, how come fuel tax revenues are flat?

    Show me a number from someone who doesn’t have an axe to grind.

  16. Jim Bacon Avatar
    Jim Bacon

    Ray, After dipping in 2002, gasoline consumption in Virginia has been climbing. The DMV tracks the stats since 1969. Click here to see those numbers and a lot more.

  17. Larry Gross Avatar
    Larry Gross

    Jim – thanks for the link.

    How to reconcile.

    I don’t not believe VDOT’s Barbara Reese nor Sec of Transportation Homer Pierce when they say there will be less funds in 2007 and by 2010 – only enough money to pay for road maintenance and no new construction.

    I suspect inflation is the issue because the gas tax has not been adjusted for inflation – since 1984 or so.

    Gas tax revenues ARE expected to drop as gasoline continues it’s upward trend in price and people switch to more fuel efficient vehicles.

    It’s not only replacing older less fuel-efficient vehicles but even newer ones – and not necessarily trading SUVs for econoboxes.. but SUV’s for more fuel-efficient SUVS – such as hybrids.

    Here’s another interesting statistic that I’d not seen in the papers:

    gasoline consumption per capita:

    U.S. Average – 464.0
    Virginia 526.9

    The other observation – at about .17 cents per gallon – Virginians pay about $90 a
    year for roads.

    Theoretically – if you DOUBLED the gas tax – we’d pay $180 and that
    put us close to the adjusted inflation rate.

    But adding .17 cents to a price of a gallon of fuel – the data crunchers tell us – will result in less fuel purchased especially if fuel itself is head for $3 a gallon.

    I’m not sure how important it is to look at specfic calculations as it is to recognize the dynamics and the trends.

    Most all of the folks who make predictions are saying:

    1. – states who don’t adjust their gas tax for inflation will see continued erosion of the value of those revenues.

    2. – As gasoline rises to more than $3 a gallon – most FORECAST a decline in useage.

    Initially they thought this would happen at $2.50 a gallon but now they are saying it depends at least, in part, also, on how quickly the price rises.

    If it goes up 50 cents over several months .. people gradually adjust – but if it goes up 50 within a month or two – people make changes.

    But most believe that there IS a tipping point for many consumers.

    People who don’t drive much are not looking at a big hit – perhaps several dollars per week.

    People who drive a LOT are looking at HUGE hits…. on a per day basis.

  18. Larry Gross Avatar
    Larry Gross

    re: the “costs” of congestion and sitting in traffic

    True Enough.

    But isn’t the REAL question:

    Are you willing to pay MORE – to NOT sit in traffic in ADDITION to gasoline itself going up in price?

    Has that question been asked in POLLS in Virginia?

    We actually asked related questions on a local POLL in Spotsylvania during the 2003 and 2006 elections.

    2006 – Do you favor HOT lanes? YES – 68%

    Would you support joining VRE and paying for it with a 2% gas tax locally – YES – 62%

    That same question in 2003 got 57%

    2003 – How much more would you be willing to pay on your Real Estate Taxes to build more local roads?

    raise it 2 cents – 55% Yes
    raise it 5 cents – 11% Yes
    will not pay any increase – 34%

  19. Jim Bacon Avatar
    Jim Bacon

    Larry, your numbers on gasoline consumption per capita for Virginia and the U.S. are very interesitng. What’s your source?

  20. Larry Gross Avatar
    Larry Gross

    oops.. so sorry.. I always try to reference/atribute when using data:

    http://www.energy.ca.gov/gasoline/statistics/gasoline_per_capita.html

  21. Larry Gross Avatar
    Larry Gross

    It occured to me that settlement patterns may have something to do with the per capita gasoline consumption…

    .. and lo and behold:

    “U.S. Cities’ Preparedness for an Oil Crisis”This is a Tale of Two Types of Cities.

    One type of city has a dense, walkable center with cultural attractions, jobs, farmers markets, and residential neighborhoods easily accessible by foot, bike, or public transit. The other type has lower density, a poorly or undefined center, separate centers of business and residential life, and is generally only accessible by car.

    SustainLane.com took a close look at the 50 largest U.S. cities to see which are most prepared and which are most vulnerable to an extended gas price shock in the $3 to $8 dollar a gallon range. Those cities that can reduce or stabilize their spending on gasoline will keep substantially more money in their state’s economy…”

    Then they go on to rank the cities according to how well they were prepared to deal with 100.00 a barrel oil..

    “SustainLane analyzed commute trend data within major cities–how many people rode, drove, carpooled, walked, or biked to work. Then we looked at how much people rode public transit in the general metro area, and metro area road congestion. Sprawl, local food, and wireless connectivity made up our final areas of data analysis”

    To see the list:
    http://sustainlane.com/article/747//U.S.+Cities%92+Preparedness+for+an+Oil+Crisis.html

  22. James Atticus Bowden Avatar
    James Atticus Bowden

    Ray: I read an article after the gas lines of the 70s where the author estimated the waiting for gas to be the equivalent of stomping on fine crystal glasses. There is a cost to congestion, but it is more of a personal cost than economic – so far – in more time away from home. Same amount of time at work. Time is money.

    The estimate or 5000 private sector jobs comes from the study the RINO Senators are pushing from the Jefferson Institute. It claimes that 4 years later – there will be 10000 new jobs, of course 8k are government.

    Larry: I dug out my old Macro textbook Macroeconomics by Rudiger Dornbusch and Stanley Fischer.

    A dollar in the economy grows new dollars. “The multiple 1/(1-C) is called the multiplier, since it tells us by how much we have to multiply a given change in autnomous spending to obtain the corresponding change in equilibrium income and aggregate demand. Because the multiplier exceeds unity, we know that $1 change in autnomous spending increases equilibrium income and output by more than a dollar.

    But “disposable income, Yd, is the net income available by households after paying taxes.”

    “Income taxes reduce disposable income relative to the level of income and thus act in the same way as a reduction in the propensity to consume in their effects on equilibrium income and output”. Reducing income and output means fewer jobs.

    Henry Hazlitt, Economics in One Lesson (written in the 40s and updated in 62 and 70), said, “capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

  23. James Atticus Bowden Avatar
    James Atticus Bowden

    oops book above updated in 79

  24. Larry Gross Avatar
    Larry Gross

    Oh! Now I remember Guns and Butter!

    Let’s say a guy wants to buy a computer but he can’t because the state took his money (as taxes) and THEY bought a computer.

    The computer still got built and someone got paid a wage for building it. Right?

    Similarily, let’s say that a road needed to be upgraded.

    The State could take the guy’s money and then use it to build that road.

    OR… he could keep his money and then pay a TOLL to the entity (public or private) that built that road.

    1. – either way – the guy is out of the money

    2. – either way – the guys who built that road had a job and got paid.

    So the only way that money does not get spent on goods and services (which produce jobs) is if the state collects it and keeps it (takes it out of circulation).

    It seems to me – it’s not about money/job connection but rather about whether a citizen gets to choose how to spend it or the government.

    NOW – if someone wants to argue that the Govt will spend it for frivilous and unproductive uses whereas Mr. Citizen surely would only expend it on useful and productive purposes – then perhaps an argument.

    But I think you’d have to admit that if Mr. Citizen spends that discretionary money on a gameboy or Nascar Tickets whereas the State might have spent it on a fancier computer than it really needed… that neither side has virtue about prudent use.

    But no matter which path the money takes – gameboy, Nascar tickets or Dell – money goes to a producer of goods and services – who, in turn pay the person who produced those goods and services.

    Where am I going wrong on this?

  25. Ray Hyde Avatar
    Ray Hyde

    I think we can mostly agree that gov’t hasn’t the same incentive about money as the private sector has and spends it somewhat less efficiently. However, much of what it does provide is a below cost multiplier of benefits to the users.

    We can argue about the virtues of food stamps vs roadway entitlements, but most of us are piggling at the trough, one way or another.

  26. James Atticus Bowden Avatar
    James Atticus Bowden

    My response was lost in cyberspace. Trying again.

    Let’s say the Government and you buy a computer for the same sticker price.

    In fact your taxes paid for the decision-makers, process, detailed procedure, offices etc that made that purchase. Their salaries, office rent, utility bills etc create new capital like a new dollar in the private sector. The rule of thumb is that a tax dollar produces less than 23 cents in the economy. Meanwhile, a dollar in the private sector produces 4 or 5 dollars. Government spending is a very inefficient way to pump up the economy and ultimately fails. Every economy must have an engine of capital creation – in goods and services.

    The next issue is who gets taxed, when you decide to tax. Toll for the James River crossings will hit out of town folks using the bridges – and the new ones when they are built – 28% of the time (2002 number).

    When government is over 20% of the GDP, then moving tax dollars reach almost everyone. That doesn’t make their expenditure right or helpful.

    Tax sparingly and wisely to not kill the goose that lays the golden eggs.

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