Northern and southeastern Virginians willvote in referenda this November to approve orreject increases in the retail sales tax to fundtransportation projects. Northern Virginianswill decide whether to increase the sales tax from4.5 percent to 5.0 percent, an 11 percentincrease. Virginians in the Hampton Roads areawill decide whether to increase the sales tax from4.5 percent to 5.5 percent, a 22 percent increase.
Proponents of tax increases point to unmettransportation needs to support their cause. Yetstate spending increased 13 percent in 1999, 7percent in 2000, and 9 percent in 2001. If keytransportation needs have not been met, theproblem is not a lack of funds but legislators whohave not properly prioritized the budget.
If the sales tax referenda are passed, the stategovernment will have a strong incentive toreduce what it would otherwise spend on transportationin northern Virginia and HamptonRoads. By some measures, northern Virginiaalready gets the short end of the stick withregard to the state budget.
Tax increases are not just bad budget policy;they are also bad economic policy. Since highertaxes reduce economic growth, an added cost ofhigher sales taxes would be lower incomes forVirginians. During the 1990s Virginia taxes grewfaster than incomes, and local property taxes havesoared recently.
Even modest restraint in nontransportationspending could save enough money to fund priorityhighway projects without tax increases.Further, the state could adopt a spendinggrowth cap that channels excess future tax revenuesto transportation needs and tax cuts.