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10 Reasons to Oppose Virginia Sales

Tax Increases

by Chris Edwards and Peter Ferrara

No. 75

September 18, 2002

Northern and southeastern Virginians will

reduce what it would otherwise spend on trans-

vote in referenda this November to approve or

portation in northern Virginia and Hampton

reject increases in the retail sales tax to fund

Roads. By some measures, northern Virginia

transportation projects. Northern Virginians

already gets the short end of the stick with

will decide whether to increase the sales tax from

regard to the state budget.

4.5 percent to 5.0 percent, an 11 percent

Tax increases are not just bad budget policy;

increase. Virginians in the Hampton Roads area

they are also bad economic policy. Since higher

will decide whether to increase the sales tax from

taxes reduce economic growth, an added cost of

4.5 percent to 5.5 percent, a 22 percent increase.

higher sales taxes would be lower incomes for

Proponents of tax increases point to unmet

Virginians. During the 1990s Virginia taxes grew

transportation needs to support their cause. Yet

faster than incomes, and local property taxes have

state spending increased 13 percent in 1999, 7

soared recently.

percent in 2000, and 9 percent in 2001. If key

Even modest restraint in nontransportation

transportation needs have not been met, the

spending could save enough money to fund pri-

problem is not a lack of funds but legislators who

ority highway projects without tax increases.

have not properly prioritized the budget.

Further, the state could adopt a spending

If the sales tax referenda are passed, the state

growth cap that channels excess future tax rev-

government will have a strong incentive to

enues to transportation needs and tax cuts.

Chris Edwards is director of fiscal policy studies at the Cato Institute; Peter Ferrara is president of the Virginia Club for

Growth.