Where Did the Money Go?
Like most states, Virginia is facing a severe budget deficit over the next several years. Because of the declining economy. Because we cannot sustain current levels of spending. And because our tax system has too many loopholes.
Everyone knows about #1. Some people know about #2. Very few people know about #3.
So let's talk about tax cuts ...
They're a lot of fun. No politician (including me) can resist the urge to tell his listeners: "Hey we cut your taxes this year." It's a guaranteed applause line before any crowd. Trust me.
But tax cuts are only good if they benefit the general welfare. If they only benefit a special interest, they're not good. In fact, they weaken the tax system by making it less universal in aplication and less fair in perception.
Having said that, let's take a look at what's happened in Virginia over the past couple decades. During that time, we passed tax cuts that took $2.4 billion (or almost 18%) out of our annual General Fund budget.
Let's take a look in order of importance:
1. Personal Property Tax Relief Act ($950 million). This tax break for local car owners up to 70% of the car value is actually a state expenditure since we reimburse localities for the lost property tax revenues under the 1998 law. Currently this relief is capped at $950 million annually in the state budget. That money is then distributed to localities based on historic collections. Ironically, the program benefits northern Virginia because of the higher property tax rates and car values. It's one of the few state programs that actually sends money to NoVA, which is why I've historically supported it. However, it is a massive burden on the state budget.
2. Reductions to the Income Tax ($791 million). This reduction is actually split into several pieces, including the "age deduction" credit ($273 million), the Land Preservation Credit deduction ($120 million), the Earned Income tax credit ($65 million), the Coalfield Employment credit ($44 million) and a host of others. The "age deduction" is being gradually phased out under our 2004 tax reform bill. The others are here to stay. At least for now.
3. Reductions to the sales tax ($377 milllion). The main driver here is the discount on sales tax for groceries and medicine ($250 million), which we enacted in 2004. I supported that and still do. The other main program is the "dealer discount" for retailers that collect the tax for the state ($64.3 million). That exemption was modified in 2009, so that figure may actually drop. Of course, every year there are no requests for sales tax exemptions. But no one wants to get rid of old exemptions.
4. Estate Tax Repeal ($140 million). This elimination of taxes on multi-million dollar inheritances occurred in 2006, three years after Mark Warner vetoed this anti-democratic albatross. Besides the fact that the elimination of estate tax served the interests of large campaign donors and not the general public, the action made a mockery of tax reform by eliminating a revenue source without any corresponding cut in spending. Of course, the economy took off after this "job creation" bill, so all is well. Or not.
So there are the pieces of our missing revenue.
Again, that's not to say I don't support some of these programs. I do. However, the net effect is that our state misses (or spends) over $2.4 billion a year in tax breaks. These breaks are not equally allocated. We're not even certain they work. We do know that losing revenue -- without a corresponding cut in spending -- will always leave our budget out of balance.
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Where did the money go? You guys spent it all when you thought the economy would continue growing at double-digit annual rates. Poor judgment.
Virginia legislators, like most Americans, need to readjust the budget to reflect reality. The "growth" that spawned the spending spree was illusory, and you all need to accept and address that.
Be brave and do the right thing. More taxes is not the answer (though I agree special-interest tax breaks are not the answer either). Spending at these levels is unsustainable and irresponsible. I can't believe you feel comfortable saddling your kids with this debt and spending largesse.
Get spending under control, prioritize the important things, and find some creative ways of generating revenue.
Well McDonnell will get the opportunity and you guys who always harp about this will need to hold him accountable now.
His first test is coming up. He said he would reopen the rest stops by cutting something else.
Let's see what he will cut instead.
Then VDOT is pretty much out of money and McDonnell has promised new "creative" funding streams for transportation.
Again.. another opportunity for you guys always banging on the Dems for their tax & spend habits...
No more blaming the Dems.. you're on the pot now.. so I expect to see results.
Chap:
Excellent post. Facts and figures. Now maybe a similar post on the state's spending history and how the bi-annual; budget has changed over time? Maybe something on whether state employees should get a guaranteed pension on retirement or have to put away part of their current income like non-government employees.
Finally, something of a pointed question. Where were all the facts and figures when Creigh Deeds was running for governor. He could have read your post at one of the debates and added thousands of votes.
You need to run for governor. You are the only politician in the state who can think through the issues and express you thoughts in a clear and compelling way.
And, yes LarryG, I am aware that Sen. Petersen is a member of the Democratic Party.
But, Chap, even you should admit that selling the state liquor stores to raise money was a pretty good idea. There is a certain symbolism about the state getting out of business it should have exited 50 years ago. Not all that much money in the grand scheme of things but a lot of symbolism.
I'd like to see more legislators do what Mr. Peterson has done.
Reveal themselves a bit as ordinary people with lives much like everyone else and at the same time share the relevant information that people need to better understand the issues that the legislators have to deal with.
See Groveton - it's a GOOD think that we have ordinary citizens in touch with their communities as our reps in Richmond - much better than 100% "professional" politicians - we already have way too many of them.
Just a curiosity question - are there actually ANY other Virginia legislators that blog?
I know one - Vivian Page down near Hampton Roads/Virgina Beach.
Are there any others in the NoVa area?
Larry, Larry, Larry ...
How about the next time you need surgery you go to a guy who only works part time as a doctor for the operation?
If we want part time politicians then we ought to pay for them to have larger staffs.
There are a few areas of debate within the General Assembly in subjects where I have decades of full time experience. I have heard and read some of the most misguided and ill-informed comments from Virginia state legislators in those debates (none from Sen. Petersen). I the GA members have plenty of native intelligence but nobody is smart enough to understand all these issues on a part time basis with a very limited budget for staff. So, if nobody is smart enough to figure out the issues part-time and you don't have funds to hire analyst(s) to help with the research - where do you get your information? There are only three choices:
1) Lobbyists / special interests
2) The entrenched bureaucracy
3) Nowhere - you don't get the information.
Your belief that part-time politicians with limited funding for staff makes for more independent legislators is just wrong. It makes for more dependent legislators. Dependent on reaseach, information and analysis from well funded groups with very much to gain from the outcome of the legislative sessions.
So, we have a legislature that works part time and has limited funds for staff and a governor that can only serve one four year term before stepping down (at least for one term). And this governance structure spends $34 billion per year?
You really couldn't ask for a more fertile breeding ground for quiet manipulation.
I have to agree that McDonnell's idea of selling off the ABC stores is a great idea. The government, IMO, should not be in the buisness of selling alcohol to start with.
The main reason why the state has budget problems, though, is obvious, though no one seems to want to admit it. Higher taxes are not only NOT the answer, but are not needed.....the Republicans are correct that they drain the economy. All that is needed is a simple re-priority of existing spending, and the existing budget. The fact is, like it or not, we spend far too much on the schools, particularly at the county level, while urgently needed transportation facilties and the maintenance on existing roads/bridges goes begging. The answer, of course, is equally obvious.....less spending on schools, more on roads/transportation.
If I had a choice between legislators keeping their local connections with more staffing or becoming more Richmond-centric with less staffing.. it's no contest.
Legislators cannot be experts on every subject - that's why they need staff, JLARC and the Auditor of Public Accounts, Commission on Local Governments, Weldon-Cooper, etc.
But what constituents need more than anything else is for THEIR representative to KNOW the communities that they represent.
They need to know what the biggest concerns are. They need to know how business is going or not.
ETC.
I assume that most folks "noticed" the so-called Town Hall meetings where many Congressman were genuinely shocked to see the unrest among their own constituents.
I attribute this to their tendency to stay more close to Washington than home - mostly of necessity I suppose.
But I like it..when I'm strolling down the aisles in the food store to pass my Richmond reps... because that tells me they know the price of food.. they understand what it's like to see the local roads... and they keep track of the local schools and law enforcement.
I would submit to you Dear Groveton that had we had MORE Richmond guys with a local touch that they would have NEVER passed the 3202 abuser fees because they would have know ahead of time how folks felt about it.
I would also submit that a strong reason why McDonnell won and Deeds lost was that McDonnell positioned himself as someone who cared about the average guy/gal in Va by saying that he knew it was about jobs and economic development whereas Deeds got tagged with having more interest in raising taxes.
Fess up Groveton. You KNOW that you DO LIKE Mr. Peterson around and about his NoVa stomping grounds; that's an asset.
As far as taxes ... school and roads are concerned..
We have a general protocol and that is that schools are funded from the general fund and roads from the gas tax.
If we are going to start funding roads from the general fund - I'd have some major concerns about setting up a system where every legislative year we have road competing directly with schools for funding. I'm not totally opposed to it but concerned.
I keep saying that when it comes to roads, the folks who live and work in rural Va will not see a need to raise taxes for roads.
It's the folks in places like NoVa who want to do that and what the GA needs to do is to find a LEGAL way for NoVa to ask it's voters if they want to pay higher taxes for transportation - and how.
It is, perfectly legal, by the way for NoVa to INSURE that every new penny for transportation stays in NoVa. It's called local and regional referendums and in all but one case, if you tell the voters what the projects will be, they have, numerous times in the past, approved tax increases to pay for them.
There's nothing wrong with that approach and it has the benefit like I said of not worrying about Richmond diverting money from NoVa to other places.
Chap, keep pushing ahead. The only ones who benefit from tax loopholes are those who don't pay their fair share. Our lack of revenue to operate the state is not because our government is inefficient (though improvements are always possible) but becasue we have too many Virginians who don't pay their share. That's why those Virginians don't live in Fairfax and worry about commuting to work. Those Virginians are subsidized by Faifax residents becasue their counties don't have enough money.
Make sure that our rights are protected in Fairfax by getting our fair share of delegates and senators in the next redistricing. Let's make our motto in Fairfax that taxation without representation is un-American. Maybe our southern neighbors would rather join Tennesse?
Thank you gents for all the comments posted above. Sorry I've been in and out of the office this week and haven't had a chance to post a particularized response to each.
Yeah, it's pretty obvious that we will be cutting spending in 2010 (and have been). And, yes, we avoided many of the hard choices last year so it's inevitable that these choices are now back before us.
My only point is that tax credit legislation (whether the goal is conservative or liberal) can also be government spending of a type and can certainly create winners & losers.