I suppose I should move on. But I can’t. I’m still hung up on the fact that the reasoning behind the 2004 tax hike was irrefutably flawed — and I’m frustrated beyond words that the voting public could care less. Chronic revenue surpluses since 2004, I’ve argued on this blog, constitute proof to any reasonable person that the tax increases were unustified. But a number of readers have responded to the effect that, “Oh, sure, Mr. Monday-morning quarterback, it’s easy for you to say that now. But no one could have prudently forecast the magnitude of economic growth that created that surplus.”

Well, in fixing some broken links on the Bacon’s Rebellion website, I stumbled across what I had written back in 2003 and 2004. You can call me a lot of things, but Monday-morning quarterback is not one of them.

Here’s what I wrote Dec. 12, 2003, in a column profiling George Mason economist Mark Craine, who had just written a book, Volatile States:

Crain … contends that Virginia’s revenue forecasting process, which filters U.S. economic projections through a state econometric model in a top-down process, is flawed. The model overlooks one major fact: Over the past 30 years, Virginia’s economy has increased 30 percent faster than the U.S. economy. Thus, the forecasts tend to be conservative and result in budget surpluses. …

Virginia’s financial situation is brightening perceptibly month by month. In October, reported Secretary of Finance John Bennett, General Fund revenues increased $83 million above the amount collected the same month the year before, a 10.2 percent increase and well in excess of the 4.6 percent estimate this year’s budget is based on. If revenues continue to exceed estimates by the same margin, the state could find itself racking up a surplus at the rate of $40 million per month — an amount almost equal to the taxes Warner wants to raise.

And here’s what I wrote Feb. 2, 2004, in a column chastising Senate Finance Chair John Chichester for his budgetary doom and gloom.

The Warner administration based the current, fiscal 2004 budget on the assumption that General Fund revenues would grow by 4.6 percent. According to the secretary of finance’s December 2003 monthly revenue report, the administration now is projecting 6.7 percent revenue growth. That means Virginia is on track to run up a surplus of approximately $250 million this year.

Secretary of Finance John Bennett has built equally conservative assumptions into his budget forecasts for General Fund revenues for the next two years. Under a no-tax-increase scenario, revenue growth looks like this:

Fiscal 2005 – 5.3 %
Fiscal 2006 – 5.1 %

These rates of growth represent a deceleration from this year’s growth, even though Virginia, like the nation as a whole, is in the expansionary phase of the business cycle. These estimates also are much lower than rates Virginia experienced during the last economic expansion, which reached levels — admittedly unlikely to be repeated — of 14.7 percent in 1999 and 11 percent in 2000.

However, there is a good chance of seeing better-than-anticipated revenue growth in 2005. In just the past month, economists have revised their growth forecasts sharply upward. The Warner budget for fiscal 2005 is predicated on real growth in domestic product of 3.8 percent. The Conference Board Economic Forecast has projected that U.S. growth could reach 5.7 percent this calendar year, which overlaps six months with Virginia’s fiscal 2005.

In a $12 billion budget, every extra percentage point of revenue growth translates into $120 million. If the Warner administration has underestimated near-term economic growth –- based as it was on now-obsolete information — Virginia could run up hundreds of millions of dollars in unbudgeted revenues over the next two years. Combine that with this year’s mounting surplus, and the state could be staring at $500 million to $750 million additional revenue for the biennium.

I don’t gloat often, but I gotta say, I nailed that one! The 2004 tax hike was based on faulty premises. Those who fail to understand history are doomed to repeat it. Lawmakers are talking about raising taxes again, this time for transportation (see the next post). Their reasoning is equally flawed, as I will argue in future posts.