Governor Proposes "Local Income Tax"
I'm down in Richmond this morning and just heard Governor Kaine give his annual budget address to the House and Senate "money committees," i.e. the Senate Finance and House Appropriations members.
The speech was about 30 minutes long. As in past years, it began with a recitation of Virginia's lofty standing and strong fiscal reputation. That was the preamble.
The Governor then followed up with a number of proposals regarding cuts in education, Medicaid and other state services which would be used to bridge the $4B budget gap which looms for 2010-2012. (one truly awful idea -- "freezing the Local Composite Index" -- deserves a separate post because of its negative impact for our school system).
The bombshell came at the end.
Right now the state allocates $950 million in car tax relief based upon the 1998 law. There's a lot of history behind that law and I won't repeat it here. Suffice to say that 22% of that money goes back to Fairfax County families, thus making it the only state spending program which reimburses Fairfax at a level approaching its contribution to the state budget.
Unlike other tax credits which favor certain individuals or industries, the "car tax relief" directly benefits middle-class families who own property and pay taxes. There is no lobbyist to clamor for it. It exists because it benefits voters. For example, each family I represent saves roughly $500 annually under this program.
To balance the budget, the Governor today proposed ending the $950M program. It's a bad choice but not entirely unexpected ...
Howevever, there was a surprise in store. The Governor next proposed eliminating the car tax at the local level completely and replacing it with a 1% local income tax to be authorized by the General Assembly. This would be a new tax assessed by localities in addition to current income taxes.
As a practical matter, I don't usually commit myself in December to a vote that will happen in March. However, I will not support an income tax increase on working families. Period.
What is most disappointing is that this administration in 2006 went along with repealing the estate tax (called the "death tax" by Republicans and Democrats pretending to be Republicans) which means that inherited wealth in Virginia is tax free.
After this legal change (which was preceded by some noteworthy six-figure campaign donations), you can inherit sums above $100 million and not pay a dime in taxes. Yet the Governor won't now touch this tax break. Nor will the Assembly.
Meanwhile, working people are supposed to pay more?
Hell no. Not for this Democrat.
I am heading back home in a couple hours. This process is playing out over the next few months. We'll see what happens.
Give em hell, Chap!!
I guess depending on how one views it, Gilmore was either a calculated genius or a blind bull in a china shop.
Because, in effect, what he did by "taking" the car tax to Richmond was taking on the ability to "cut" that tax at some point in the future - when the state budget came under pressure to have cuts made.
Now the "genius" idea is only viable if you put it in the "one trick pony" category because I don't recall many other equivalent things that was done by his administration.
At any rate.. here we are - at the point where the state budget has the fiscal equivalent of a cut artery... bleeding profusely and very motivated people looking for low(er) hanging fruit to cut.
so GEE.. do we cut Deputies, Teachers, or that stupid car tax?
Kaine, on the other hand, seems almost diabolical - offering up a fiscal equivalent of the car tax - instead of giving it back to the localities... just shift the source of the revenues to a state-imposed locality tax.
Such perversions seem to offer a Dillon-rule fandango... No can do "home rule"?
No problemo... we just create the Dillon Rule equivalent "Home Rule LITE" and essentially give every locality the right to levy a "local" income tax.
The ironies are rich here.
... because... Kaine gets to exit state left and stepping forward center stage is McDonnell and the "no mo tax" Republicans to pick up the bag on the stage full of fiscal poo..... stinko
Okay... so the time has come.
The Fiscal Conservatives have said FOR YEARS that Virginia Government just grows and grows and taxes kept going up faster than the rate of inflation ...
now their time has come to ...hey.. "walk the walk".. after all those years of "talk the talk".
This is going to be better than watching the Redskins try to do something right.
Chap - Explain to me why the government should tax an inheritance. The wealth as you call it has already been taxed - why should the government tax it twice?
Batavia,
I really love the inheritance tax. I have less problems with reducing the taxes on the wealthy while they are alive then I have with doing away with the inheritance tax.
First off, America should be a nation of meritocracy instead a nation of those who are born with the silver spoon in their mouths. Why should some snot nosed kid be wealthy for the rest of his/her life after Daddy and Mommy die?
Daddy and Mommy earned the money. Their kids did not.
Chap, just a point of clarification: am I correct in thinking that you would be in favor of a tax increase in lieu of spending cuts to schools, police, etc.? And what you're opposed to with the governor's proposal is the type of tax being implemented -- one that impacts everyone, instead of one that is consumption-based?
here's the deal. The car tax funds localities - law enforcement, schools, libraries, etc.
The question is how would you like to pay OR do you want cuts at the local level?
The ORIGINAL car tax was a totally local tax until Gilmore came along and decided to fund it at the state level. It didn't mean you paid less taxes overall. You paid the same. The money the state gets to "reimburse" the localities comes from your state taxes.
Now - what Kaine is saying is that because of the current budget shortfall that the state will have to make cuts - at all levels - and one of those areas is the car tax - which will be tantamount to cutting local services.
What he is advocating instead is a higher state income tax that will then go directly to the localities to REPLACE the car tax.
This is more complicated than most folks will easily appreciate but in the end - what Kaine is saying - is that unless people agree to pay higher taxes to maintain their local services, then the state cuts to localities will be even deeper than what is projected right now.
There is no money tree in Richmond.
Taxes come from you. You pay locally and you pay the state. Major cuts are required if you don't want to pay higher taxes to make up for the revenue shortfalls.
Ball is in YOUR court.
This is the perfect storm for both sides. On one side, we have the folks who say that we pay way too much in taxes and that government has grown bigger and is more consumptive than it should be (this would be the incoming Gov and the current GA majority view) and then on the other side, we have those who believe that taxes provide for important quality-of-life things (like schools, law enforcement, community amenities, etc) and that if we don't pay enough, we end up with lesser communities... more stark.. less livable, etc...
So NOW, we actually get to see how the Republicans will deal with the revenue shortfalls - which if you believe that taxes are too high already - is the perfect manna-from-heaven circumstances to pare back government.
AND we get to see the folks that think that taxes provide a better quality of life for everyone.
They've already pretty much rejected Kaine's approach - including Chap Peterson.
But the revenue shortfalls are still there.. and the choice still will be at the end of the day - what do you want to cut or do you want to pay higher taxes to avoid the cuts....???
this is the perfect time for our elected representatives to show some leadership....
The question is - Was Gilmore a Fiscal Conservative Genius?
I'm persuaded that he was. He KNEW the day would come when the state would have a budget shortfall and that one of the items that could be cut in that event would be the car tax "reimbursement".
I know of no other state that has done this. It's unique - and it clearly has consequences in a budget shortfall.
Here's what is probably going to happen. The GA is going to refuse to do what Kaine suggests. Then they are going to try to find enough state-level cuts to "preserve" the car tax "reimbursement" but they are not going to be able to and ultimately they're going to have to cut some of it.
Then the poo will roll downhill to the localities who - faced with both state and local revenue shortfalls, will have to decide if they are going to eat the cuts - cut back deeply on schools and law enforcement OR will THEY raise taxes to recoup lost revenues.
Did Gilmore see far enough into the future to realize that ultimately he would be forcing localities to justify to their local voters - fairly significant tax increases over and above the business-as-usual ones?
Thanks for your comments, Chap. Predictably, the Post reports this morning, Gov-Elect dismisses the idea of a tax increase out of hand, so you won't have that to worry about. As I mentioned the other day when I saw you in court, it'll be truly interesting what the Republicans do to keep Virginia from disintegrating into chaos in the next year. Their usual m.o. is to inherit good times (usually made possible by Democrats) and do their best to run the Commonwealth into the ground. This year they come into power in bad times, so it's a lock they will make things much worse.
We're relying on you and the Democratic majority in the Senate to save us, on this and so many other issues. Courage!
- Roy Baldwin
Opportunities - for consolidation.
Much of the Virginia budget, is in fact, money for localities - each who has replicated functions and agencies within their boundaries - those boundaries arbitrarily set by English royalty and their agents.
Who says we have to have 95 counties, 39 independent cities, and 190 incorporated towns to deliver the same services Virginia citizens?
Virginia is the only state to continue to insist on this level of separation of governance and taxation.
We have done regional cooperation and coordination of some things but others are replicated and duplicated with expensive top-down hierarchies.
We all want more efficient, less wasteful government and during times like this, we do have the opportunity to revisit how and why we do things that cost money.
We should not just jump willy-nilly but probably ought to start by going back and reviewing some recent recommendations by JLARC and the VAPA.
Thanks everyone for your comments which I've had time to read on this snowy day. As always, much appreciated.
LarryG poses the correct Q. What will we cut to balance the budget? To answer the Q, I did not (and have not) taken a pledge against any taxes. In fact, I've proposed eliminating some current tax credits and I've consistently favored an indexed gas tax which is largely paid by out-of-state motorists. I won't pretend that these measures solve the problem. They don't.
The size and scale of government is open for discussion. Ironically, we may be at cross-currents with the Feds on this. We cannot sustain what we're doing right now.
Once again, Chap, I find myself pretty much in agreement with you.