Bacon's Rebellion

Is Fitch Really the Reagan-Style Candidate?

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by

James A. Bacon
in

George Fitch has finally entered the gubernatorial fray in a public way, questioning Jerry Kilgore’s commitment to cutting taxes. Said Fitch of Kilgore in a press release distributed late Sunday night: “He puts his anti-tax foot in, he pulls his anti-tax foot out. He’s doing the ‘hokey pokey’ with the taxpayers of Virginia.”

“Kilgore proposes limiting hikes in real estate tax assessments to 5 percent beginning in 2009, if approved by a constitutional amendment,” Fitch declared. But the amendment would not guarantee tax relief, he charged: All it does is cap assessments and not the tax rate.

Fitch makes a good point. But what’s his preferred tax cut? It turns out he wants to finish phasing out the car tax cut.

(Bacon puts his head in his hands and moans.) What is this obsession with the car tax? Yes, I know people hate it. But there are soooo many problems with it. (1) The benefits from repeal of the car tax are distributed incredibly unequally across the state; (2) the repeal rewards those localities that had raised their taxes the highest, not those that had tried to keep taxes low; (3) the state has consistently under-forecast its liability for the tax, making it more difficult to plan expenditures; and (4) repealing the tax cuts the cost of automobile ownership at a time when, due to increasing traffic congestion, we should be increasing the cost of ownership.

Finally, (5) there are so many alternatives for cutting taxes that could reward people for working harder (trim the top rate of the state income tax), help support working families (increase the state income tax deduction for children), promote economic development (reduce corporate taxes on small and midsize businesses). The list could go on. Repealing the car tax may be good politics, but it is not good governance.

Fitch has dubbed himself a supply-side, Reagan-style conservative, and I’d taken him at his word when profiling him recently in Bacon’s Rebellion. But there’s nothing “supply side” about repealing the car tax. I’m very disappointed.

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  1. Laszlo Avatar
    Laszlo

    Fitch is right again, read Barnie Day again, it is the tax RATE not the assessment of propery that drives the local tax bill as decided by your local elected officials. Anything else is hocus- pocus, an imitation Latin phase used by jugglers.

  2. Will Vehrs Avatar
    Will Vehrs

    Unless I’m mistaken, Kilgore also favors phasing out the car tax, so we have Fitch carping at a Kilgore plan that, whatever its merits, addresses the tax issue most on voters’ minds right now.

    I wonder if Fitch is making a tactical error, even as a serious underdog, by attacking Kilgore. It seems to me that the way to Republican hearts would be to subtly exploit doubts about Kilgore by running as a better candidate against Kaine–a more dependable tax-cutter, better in debates, etc. As a bonus, win or lose, he would get the “uniter, not divider” mantle.

  3. Paul Avatar
    Paul

    Here are the current rates for individual income:

    $0-$3,000: 2%
    $3,000-$5,000: 3%
    $5,000-$17,000: 5%
    $17,000+:5.75%

    with a standard deduction of $2,500.

    If that’s not an antiquated formula, I don’t know what is. Those numbers look like they were last inflation adjusted in 1950.

    This would be the place to start on tax reform.

    And don’t forget the sales tax (exists!) service tax (doesn’t exist!) inbalance.

  4. Paul Avatar
    Paul

    Here are the current rates for individual income:

    $0-$3,000: 2%
    $3,000-$5,000: 3%
    $5,000-$17,000: 5%
    $17,000+:5.75%

    with a standard deduction of $2,500.

    If that’s not an antiquated formula, I don’t know what is. Those numbers look like they were last inflation adjusted in 1950.

    This would be the place to start on tax reform.

    And don’t forget the sales tax (exists!) service tax (doesn’t exist!) inbalance.

  5. Ray Hyde Avatar
    Ray Hyde

    “America’s environmental revival is a rich and complicated story with many specific exceptions, caveats and, of course, setbacks. But the overarching theme is pretty simple: The richer you get, the healthier your environment gets. This is because rich societies can afford to indulge their environmental interests and movements. Poor countries cannot.”

    – Jonah Goldberg

    Getting richer means promoting commerce, preferably environmentally friendly commerce. The automobile is a fundamental player in American commerce, therefore, despite its environmental cost in terms of pollution, it helps make us wealthy enough to afford all kinds of other environmental initiatives.

    While it might make sense to tax travel, as in gas tax or congestion area user fees, it makes no more sense to tax someone who happens to own an automobile than it does to tax someone who happens to own land, or shirts (which are taxed as property in NC).

    In NC they give you the option of providing a valued inventory of everthing you own and paying tax on that or substituting a tax on your income as a proxy for what you own and therefore owe in property tax.

    In the end taxes have to come out of cash flow, whether that is income or sales, or some other method which is related to commerce. Income tax has the problem that people with illicit income avoid it, sales tax is avoided by barter, etc. Therefore it makes sense to have multiple taxes associated with commerce, particularly in this business climate for services, as Paul notes.

    A gas tax, or congestion tax would fall in that category because presumably, if you are travelling, some commerce is going to ensue. The VAT touches commerce at every level, but it is horribly complex.

    But why tax someone for a vehicle that is just sitting there? I have a hay delivery truck that gets used only a few times a year, but it is taxed as if it was a commercial truck, which just makes it harder for me to grow my business. I’d be better off with more gas tax, at least I only pay it when I’m working.

    The car tax is hated for good reason – the assessments were absurd, and the same declining asset was taxed over and over. It’s different if you are taxing an asset that is increasing in value. Any politician with brains won’t touch the car tax again.

    Even though the only real way the government can raise revenue is by touching commerce, it is best to touch it as little as possible, because, the richer we are the more we can do for the environment.

    Effective government should raise as little money as possible and do it in the most direct and efficient manner possible. That means you generally cannot design taxes as social engineering tools and also have them be efficient.

    Having raised the money, it should be spent effectively and efficiently, too.

    Anyway, if we are worried about sprawl and congestion, why promote tax breaks for having children, of all things? Looking around me, I’d say that is an activity that needs little promotion beyond that which God provided.

    Having said that, is there a legitimate government interest in not letting all the money wind up in one pocket? Sure, because then commerce, and taxation, would effectively stop. If I own everything, I don’t need to buy anything, and don’t need to pay someone to get it for me. This is the danger of increasingly polarized wealth distribution. We can easily see the effects on the economy by looking at Mexico or Paraguay.

    Therefore, lowering the tax rate on upper brackets is probably counterproductive to the government’s interest. As a rule though, social engineering is costly and ineffective: a program to teach homeless people the skills of home ownership is probably more expensive and less effective than just spending the money to provide shelters.

    My favorite for a new tax is a 50% tax on lobbying activities. That would ensure that only special interests who are really interested would be out looking for favors – and it would raise a lot of money.

  6. Paul Avatar
    Paul

    Ha – as someone in the government affairs industry, I must take umbrage with your new tax!

    Otherwise I pretty much agree.

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