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Support for sales

legislature and is now campaigning for pas-

Introduction

sage of the proposed tax increases.

tax increases

The sales tax referendum is a classic political

illustrates the

Citizens of northern Virginia will vote this

con game. Politicians insist that there is no

failure of state

November on a proposal to raise the general

money left in the budget for whatever the most

sales tax rate in that region from 4.5 to 5.0 per-

important issue happens to be for voters. If vot-

politicians to live

cent, an 11 percent increase.1 In southeastern

ers' top priority is highways, then politicians

within their means.

Virginia, or Hampton Roads, citizens will vote

insist there is no money left for them and claim

on a similar proposal to raise the sales tax in

that higher taxes are needed. If voters' top priori-

that region from 4.5 percent to 5.5 percent, a

ty is education, then politicians insist there is no

22 percent increase.2 The proceeds from those

money for it without more tax increases. The

tax increases and subsequent bond issues are

reality is that the support for sales tax increases

to be used for transportation projects only in

illustrates the failure of state politicians to live

those areas paying the higher taxes.

within their means after large tax revenue and

The ballot questions are one-sided, as they

spending increases during the 1990s.

only allow a tax increase option, not an option

The sales tax proposals come at a particularly

to control state spending to free funds for

bad time, as the economic slowdown has

transportation. Ironically, the Virginia political

reduced the ability of families and businesses

establishment has long been opposed to popu-

across the state to pay more taxes. Indeed, sup-

lar referenda, but this year elected officials have

porters of the tax increase face strong grassroots

allowed citizens to vote only for an increase in

opposition in Virginia this year. Citizens

the size of the government. The last significant

opposed to higher taxes, and liberals and envi-

referendum on taxes was a 1987 Fairfax County

ronmentalists who believe that more highway

vote on increasing the restaurant meals tax to

construction will lead to more urban sprawl and

fund education. That referendum was defeated.

pollution, are against the sales tax increases.

In 2003 state transportation spending of

If Virginians examine the state budget,

$3.3 billion will be funded from a remarkably

they will find that they already pay more than

complex array of taxes and fees.3 (All budget

enough in taxes to finance all the basic ser-

data are for state fiscal years, which end on June

vices of state government, including roads

30). Major funding sources include federal

and highways. Slowing the growth rate in

grants, half of a percentage point of the state's

overall state spending in future years would

general sales tax, a gasoline tax of 17.5 cents per

free funds for transportation and allow a full

gallon, a motor vehicle sales tax of 3 percent,

phase-in of the car tax repeal.

motor vehicle license fees, and many other fees

This report discusses 10 reasons why

and taxes. The current Virginia general state

Virginia does not need a sales tax increase.

sales tax is 3.5 percent, but localities add an

Reasons 1 to 9 have to do with the current bud-

additional 1.0 percent for a total of 4.5 percent.

get situation in Virginia. Reason 10 is that tax

The proposed sales tax increases have been

increases have not only budget implications but

pushed by developers and other business

also important economic effects. Since tax

interests in northern Virginia, led by the

increases reduce economic growth, the sales tax

Northern Virginia Roundtable. In a recent

referenda are about more than funding high-

statement, the Roundtable called for increases

ways. They are also about preserving Virginia's

in state individual and corporate income

strong economy. Finally, we provide some poli-

taxes, gasoline taxes, and sales taxes.4 Clearly,

cy options that Virginia legislators should con-

developers directly benefit from expanded

sider instead of tax increases. It turns out that

construction funding for highways and mass

reasonable limitations on general fund spend-

transit. Virginia's governor Mark Warner, who

ing growth would leave more than enough

has long been supported by those groups,

funds for essential transportation projects and

pushed the sales tax referenda through the

further tax cuts in the years ahead.

2