4 Sale News - No Case For Higher Taxes

NO CASE FOR HIGHER TAXES

By Peter Ferrara

MARCH 30, 2006 - - The Virginia Assembly is now in special session to consider yet another tax increase, this time for transportation. The House of Delegates passed a budget providing an additional $2 billion for roads, with no tax increase. But the Senate passed a record $4 billion tax increase for roads, raising taxes on gas, car purchases, car registrations and home sales.

The special session has been called to resolve this difference between the two budgets. Governor Kaine supports a tax increase for transportation as well. But a review of the state budget facts, which are rarely well presented to the public, shows there is no good case for another tax increase.

Just two years ago, the Assembly enacted a record tax increase of $1.4 billion in the first two years alone. We were told that money was needed to balance the state budget. But the budget they then adopted for fiscal years 2005 and 2006 raised state spending by an extreme 19% over the prior two year budget, according to published data from the Virginia Department of Planning and Budget. The Assembly could have increased state spending in that budget by 15% without any tax increase.

Even with that spending increase, the state has produced $3 billion in cumulative surpluses since 2004. The Senate and the Governor want to spend all of that money as well, and increase taxes for even more spending.

The House passed budget now under consideration would still increase state spending over the prior two year budget by another 14%, even without a tax increase. It provides for an additional $2 billion for transportation, on top of the $9 billion that is already in the budget.

The House budget also provides for a record $12 billion in state spending for public schools K-12, including pay raises for teachers. Record levels of state spending for colleges and universities are included as well. All told, state spending for education is increased by $2.4 billion in the House budget over the prior 2 year budget.

But all of this increased spending is not enough for the Senate and the Governor. The Senate budget would increase taxes by $4 billion to increase state spending by 17%, rather than 14%, and spend $13 billion on transportation in the next two years, rather than $11 billion. Under the Senate budget, state spending would increase altogether by an extreme 36% from June, 2004 to June, 2008.

Ask yourself, is your income going to increase by 36% over that four year period? It will probably increase only half as much, at best.

The state is going to have to learn to live within the means of the families of Virginia. It can’t keep increasing its spending year after year faster than family incomes are growing in the state. For it is an inexorable mathematical verity that if they do, state taxes and spending will eventually grow to 99% of family income.

Frankly, the House budget increase of 14% is still too high, particularly after the enormous increase in the last budget. But at least it displays the good sense not to seek another tax increase on top of a record increase two years ago and a record surplus since that time.

[Peter Ferrara is President of the Virginia Free Enterprise Fund and a Director of Entitlement and Budget Policy at the Institute for Policy Innovation.]