Commentary

Illusory Sales Tax Hinge

By Stephen Moore
May 7, 2002

To paraphrase Shakespeare: “Lord what fools these Republicans be.” On April 17, just two days after IRS tax day, the Republican controlled legislature in Virginia voted overwhelmingly to approve a sales tax referendum in Northern Virginia. Politically speaking, they might as well have swallowed a live hand grenade.

The half-cent sales tax boost is allegedly necessary to pay for more and better roads in Northern Virginia. But if bigger budgets in Richmond were the solution to the horrendous road congestion problem in places like Arlington, Alexandria, and Fairfax, our roads would be paved in gold.

Transportation spending is up more than 60 percent in the past decade in Virginia and congestion merely gets worse.

But this vote was not just fiscally unwise. It was a betrayal of the trust voters put in the Republicans when they voted them into office and gave them control of the legislature in Richmond for the first time in years. The GOP seized legislative control powered by the locomotive of the anti-tax issue. But many of the very same politicians who were beneficiaries of this voter hostility to taxes have voted in favor of the sales tax referendum. This was a vote for rich developers and against small businesses and middle-income home owners who will pay the higher tax load.

As a Northern Virginian myself, I know firsthand of the transportation gridlock issue in Arlington, Alexandria and Loudoun Counties. We need new roads, to be sure, and we must not waste our gas-tax dollars on extremely inefficient mass transit boondoggles that no one uses.

All gas-tax dollars should go to building roads — period.

Many supporters of the referendum say: Let the people decide. Why shouldn’t local voters be permitted to decide for themselves if they want to pay a higher sales tax for better transportation? The answer is that the legislature is presenting Northern Virginians with a false choice: Either pay higher taxes or get used to worse and worse traffic congestion. This is about as appealing a choice as when the robber offers his victim: Your money or your life.

The referendum supporters are hypocrites when they shout, “Let the voters decide.” Why? Because many of the same pro-tax referendum agitators are opposed to voters deciding on issues like legislative term limits, tax and expenditure limits for the state budget, recall for politicians, and voter approval of all tax increases. Let voters decide, indeed.

This sales tax fight is not about building more roads. In fact, there is no guarantee these extra sales tax revenues would be used for widening Interstate 66 inside the Beltway, or improving the Beltway. Instead, this money takes the pressure off the legislators in tough budget times, so they won’t have to cut low-priority social programs. That is why almost all the liberal big spenders voted for the referendum — even though many of them are opposed to road projects.

What is needed most in Richmond is not new taxes, but budget belt-tightening. The Virginia state budget has almost exactly doubled in size since 1990 — from $5.7 billion to $11.5 billion. That is roughly twice the rate of growth of the federal budget, and Lord knows that the U.S. Congress is no slouch when it comes to spending money.

A recent analysis by the American Legislative Exchange Council (ALEC) finds that over the past decade Richmond has been on the ninth-fastest spending binge among the 50 states.

Now, Virginia has experienced lots of population growth since the early 1990s. But even if we adjust for the increased number of families that now reside in Virginia, the state’s budget has risen at twice the rate of population growth plus inflation since 1992. If Virginia had held the rate of growth of tax revenues to the rate of inflation plus population growth over the past decade, the average Virginia family of four would be paying $1,700 a year less in taxes over what they now pay. That’s more than enough money to pay for all the roads we need in Northern Virginia.

The last time the pro-tax lobby told Virginians to swallow new taxes to pay for roads was 1986. We got the sales tax increase, but not the less congested roads as promised. As Peter Ferrara, the head of Virginia Club for Growth has noted: “There is nothing in this referendum that would require lawmakers to spend the additional tax revenues on the road projects that are needed most.”

Virginia is an attractive place to live and work in part because it has a tax-friendly environment for businesses and families. But the state’s tax advantage over neighbors like Maryland may be eroding. Since 1992 the Virginia budget has bloated by 80 percent versus 59 percent for Maryland. Maryland has cut its income tax rate. Virginia hasn’t.

In this part of the state, many businesses, especially those in the high-tech corridor, are hurting. They are trying desperately to keep their heads above water in this technology recession. A sales tax increase during these precarious economic times is tantamount to throwing an anchor to a drowning man.

If the legislators in Richmond really believe Northern Virginia can tax itself back to prosperity, then it only goes to show that we need new representatives, not new taxes.

Stephen Moore is a senior fellow of the Cato Institute.