Yesterday, Virginia Governor Tim Kaine agitated, if not exactly shocked, the legislature by announcing his final budget proposal to the General Assembly’s two money committees, which includes $1.9 billion in tax increases and $2.3 billion in cuts. The state has experienced revenue declines for two years in a row—the first time this has happened—and Kaine has gutted many billions of dollars from the budget since 2008. He said that Virginia “has gone well beyond finding efficiencies and doing more with less”, although he has proposed some of the usual types of cuts: reductions for colleges and universities, elimination of empty state jobs and layoffs, cuts to public schools, eliminating state pay increases, raising the retirement age from 50 to 55, and requiring state workers to pay a portion of their salary into the retirement program that has heretofore been paid by the state.
But the element that has everyone’s knickers in a twist is Kaine’s proposal to eliminate the state car tax and replace it with a one percent income tax. This is not as simple as it sounds: in 1998, the Republican governor and legislature agreed to gradually phase out the car tax, which is a source of funding for local governments. Instead of having car owners pay the tax directly, the state would reimburse local governments the cost of their lost revenue. Eventually, this burden for the state came to be so expensive that the legislature capped reimbursements at $950 million per year. Each local government has a different car tax rate, but car owners only pay a fraction of that (less than $300 in Fairfax County for a $20,000 car) annually. Kaine’s plan is to eliminate the state subsidy by allowing local governments to impose the income tax (on top of state income taxes) that would go directly to them.
First, I would say that despite the overwhelming Republican victory in November’s elections and despite the fact that we are in a recession, it’s ludicrous to think that the state ought never to raise taxes to pay for social services. Do you want to keep police officers on the streets? Teachers in the classroom? Hospitals open for the mentally ill? I know that there is an argument to be had that trimming teachers, doctors, and emergency responders should be the last target of budget cuts—but that administrative positions that have no direct impact should be fair game. That is reasonable, except that all of the professionals just mentioned usually have enough work to do without having to take on more administrative duties or casework as a result of their support structure being reduced. How can a person be expected to focus on teaching if she must investigate a student’s abusive parent when the guidance counselors and vice principals are lost to budget cuts?
Second, I’m sensitive to the proposition that the state should not raise taxes on middle class families. I like the idea of increasing statewide consumption taxes—or else unshackling local governments’ abilities to raise their own. As always, the downside is that consumers might purchase less and retard economic recovery, but I don’t think that obscenely high sales or meals taxes (or a hike in the cigarette tax) are inferior alternatives. (Also, I’ve said it before, but the gas tax needs to be bumped way up to reverse the shrinking transportation budget, but that’s another topic.) Quite frankly, I don’t see why we cannot eliminate the car tax subsidy by making car owners pay the whole shebang—if calibrated the right way to include reduced assessments for hybrid vehicles, it could discourage ostentatious purchases and could encourage ownership of smaller, more efficient cars. Northern Virginia’s transportation infrastructure is already overstretched (partly due to poor planning decisions), so it makes sense to me for car owners to shoulder the cost of keeping police on the roads and funding mass transportation where it exists.
This could all be moot, since Governor-elect Bob McDonnell and the expanded Republican majority will refuse to raise taxes. That’s too bad, because he could complain about the fiscal crisis he “inherited” from Kaine and beg the legislature to swallow a tax increase to prevent further cuts. But, as it stands, it’s up to him now to figure out how to cut at least two billion further dollars from the budget without harming vital services or passing the buck to local governments, who must make the unpopular decision to raise taxes.





