 Commentaries
 Printable Version |
 Email to a friend
State Tax Reform: The Next Storm Warningby
Jeff Dircksen Oct 8, 2003
As the Commonwealth works to put the aftermath of Hurricane Isabel behind
it, the political winds no swirling through Richmond could prove even more
damaging. The decision by the commission charged with restructuring the Commonwealth's
tax code to cancel its next meeting makes the outcome as unpredictable as
Isabel's path. With the Governor refusing to release his plan until after
the November election and the uncertainty about the work of the commission,
Virginians should now be on a fiscal "hurricane watch."
While some politicians may justify putting off tax reform by claiming Virginia
is traditionally a low-tax state, Commonwealth citizens are not under-taxed. Per capita
revenues have risen 57 percent in
Virginia from 1979-2001, even after adjusting for inflation. The Commonwealth
has also been trying much harder lately to "catch up" with its higher-taxing
neighbors. Between 1991 and 2001 tax growth in Virginia outpaced income growth
by 2.2 percent annually. Among eight neighboring states, only Pennsylvania had a wider margin
of tax growth.
To the benefit of taxpayers, the Commonwealth has not radically altered
its tax bases or rates over time. According to the Virginia Department of
Taxation, "The state has not raised its income tax rates since 1972. The sales
and use tax rate of 4.5 percent (3.5 percent state and 1 percent local) is
among the lowest in the country and has been raised only once since 1968."
These stable rates and bases allowed per capita revenues to climb from $2,291
in Fiscal Year 1979 to $3,596 in Fiscal Year 2001, after accounting for inflation.
However, as a result politicians in Richmond escalated spending dramatically
after Fiscal Year 1984 and on average the budget grew at a whopping 6.8 percent
annual rate. If the budget had instead increased at the rate of inflation
and population growth since Fiscal Year 1984, expenditures in the current
fiscal year would have been $8.8 billion lower.
It is unlikely that elected officials will confess to having skimmed an additional
$9 billion from taxpayers in the last two decades. But the next two decades
won't be economically prosperous for Virginia's citizens unless the Commonwealth's
entire fiscal structure is dramatically renovated soon. Here are some places
to begin:
Establish a "Sunset Commission." A less
burdensome tax system depends, in turn, upon a less burdensome bureaucracy
that doesn't require as much care and feeding. Although former Governor Wilder's
anti-waste panel was a commendable start, Virginia needs a permanent Commission,
armed with statutory criteria, whose recommendations would compel the Legislature
to decide on "sunsetting" programs that are redundant or ineffective. Texas
is a model example, as its Sunset Commission has saved money by abolishing
44 state agencies and consolidating another 11. And, for every dollar spent
on the Sunset process, Texas has received $42.50 in return.
Replace the Current Tax Code with a Consumption Tax. If the General Assembly
and the Governor are serious
about improving Virginia's tax code, they should consider eliminating the
current tax code and replacing it with a broad-based, low-rate sales tax that
provides exemptions for clothing, groceries, and prescription drugs. This
would put a stop to the endless cycle of reviewing the tax code to suit current
political fashions, and would provide the Commonwealth with a 21st
century tax system.
Implement Strong Constitutional Protections for Taxpayers. Leaders should also explore a
"Taxpayer's Bill of Rights" (TABOR) Amendment
for the Virginia Constitution. This provision, which Colorado voters adopted
in 1992, limits growth in government spending to inflation plus population
growth. It also mandates tax rebates if revenue collections exceed the accepted
rate, and requires "super-majority" votes of the General Assembly or local
board to implement "emergency" taxes.
Colorado's TABOR has forced politicians to live within their means and the
result has been substantial economic growth for the state. To date, none of
the gloom-and-doom predications about draconian cuts in services has occurred.
Traditionally, Virginia has been a low-tax state. That tradition is in danger
from a political maelstrom that the Governor and General Assembly have concocted
by themselves. Elected officials should be using the remainder of this year
to engage citizens in a dialogue about how the current tax system really works,
about how tax dollars are spent, and about how changes will affect them. Otherwise,
the damage from this storm over tax reform won't be measured in terms of downed
trees or flooded homes, but lost economic opportunities for millions of Virginians
instead.
Jeff Dircksen is a Policy
Analyst for National Taxpayers Union, a non-profit, non-partisan organization
founded in 1969 to work for lower taxes, less wasteful spending, and accountable
government at all levels. |
