Economics and taxes: Byrd to Warner

By PRESTON BRYANT
DEC. 8, 2003

Preston Bryant is a Republican who has represented Lynchburg and part of Amherst County in the Virginia House of Delgates since 1996.

One line of thinking acknowledges that our economy is a consumer-driven one. This is true on the national and state levels. As such, its strength depends on buying power. Simply put, the more money in consumers' pockets, the more they have to spend. The more they spend, the greater demand for goods. The greater the demand for goods, the greater need for production. The greater need for production, the greater need to employ workers. And it's these salary-earning workers who turn around and spend their paychecks as consumers, thereby helping drive production. It's a wonderful economic cycle that should forever feed on itself.

In keeping with this theory, there is an accompanying call for a laissez-faire government that is light on taxes and business regulation. In short, the government shouldn't bind the hands of the free enterprise system that feed us. For a modern champion of this, see the 20th-century economist Milton Friedman.

The other line of thinking likewise acknowledges that ours is a consumer-driven economy, and it stipulates to that same magical recycling of money inspired by shoppers. To boot, though, it suggests that the public sector also can play a role in production and job creation, and thus in overall economic expansion. At its best that production and job creation is tied to big government projects that, in and of themselves, may enhance our economy. Recall, if you will, FDR's Works Progress Administration, which during the Great Depression put people to work building public infrastructure, such as roads, bridges, parks, and government buildings.

In short, it's a theory in praise of well-intentioned government programs to ensure that people have a paycheck so that they can go out and spend, spend, spend. A champion of this school of thought would be another 20th-century economist, John Maynard Keynes.

At the root of it all, of course, are taxes. Friedman would suggest that a tax hike to fund government programs is not the catalyst for economic expansion; instead, it's the unencumbered circulation of money that does such. Keynes would suggest that taxes brought in at a higher-than-necessary level can be put to good use to raise the standard of living for all, creating what he calls a more evenly "affluent society."

The first half of the 20th century turned on a national scale toward a Keynesian philosophy. That's what FDR relied upon, at least in part, to help pull our nation out of its worst ever depression. The latter half of the century, however, has trended toward Friedman's notion that low taxes and minimal regulation is just what the doctor ordered for a healthy, productive, ever-expanding economy.

In Virginia, conservative policymakers -- especially its governors -- have always been much more set in the low tax, low regulation camp. Even in the early part of the last century, in the years just before and after the Great Depression, governors sought to restructure government rather than raise taxes.

Looking back to the revered Harry F. Byrd, who sat in the governor's office in the years leading up to the Great Depression, you'll find a guy who promoted tax and regulatory policies benefiting emerging industrialists, despite state services that were suffering. Byrd left office in 1929 and was followed by John Garland Pollard, whose four years were wracked by the stock market crash and its fallout. Pollard had the option to embark on a capital improvement program akin to the WPA, though it might've left the state's ledgers out of balance. He chose not to go that route; instead, the governor cut expenses and raised no taxes. And following Pollard was George C. Peery, the one to whom the post-Depression clean-up largely fell. While he eschewed New Deal-type programs at the state level, he didn't turn away federal assistance for the poor. It was that federal aid that allowed him to be yet another governor to forgo tinkering with state taxes.

It was during Byrd's tenure that a good deal of tax reform and local government reform had taken place. His two immediate successors, largely beholden to the powerful Byrd for their political fortunes, were forever in touch with Byrd, seeking his advice on all matters of state. Byrd, obviously, didn't want the tax and government reforms he'd enacted to be changed, and he pressured Pollard and Peery -- and certainly governors beyond them -- to keep them in place, despite a horrendous economic climate.

Fast forward about 75 years to Gov. Mark Warner. Today, he's still dealing with a tax structure that was set in place in the Byrd era, one that was defined when agriculture was so much more an economic driver than it is today. Of course, times have changed. Virginia's economy has changed. It's now one that's less dependent on agricultural production than on high-tech manufacturing, research and development, and financial services.

But while our economy has changed tremendously over the years, our method of measuring wealth for tax purposes has not. In the eyes of most, a serious modernization of the state tax code is needed. In the eyes of a few, it's not. If our tax structure was good enough to get us through the post-Depression days, it's good enough get us through less harsh recessions. If Virginia resisted turning to Keynesian economics then, even when the federal government was doing so, then we don't need to be doing it now.

Such is the thinking Warner faces as he embarks on a campaign promoting tax reform, which is, in effect, about a $1 billion tax increase spread over the state's biennial budget. The task before him is to convince legislators, not to mention the voters who influence them, that his reform plan is less about expanding government and creating new programs than it is about a more modern and equitable distribution of the tax burden in a way that allows government to continue paying its bills for basic services, such as educating kids, building roads, protecting the public, and assisting the most disadvantaged among us.

Those opposing Warner's tax-reform plan do so, in part, on the belief that Friedman's economic theory is better than Keynes'. And indeed it is. It is incumbent on policymakers to keeps taxes and regulations as low and reasonable as possible.

It's also incumbent upon policymakers, however, to see that taxes fund at an appropriate level government's core functions and that they are fair to all who pay them. At present, we're under-funding secondary and higher education, and we're running out of money to build new roads -- both of which are integral to expanding the state economy. Public safety is increasingly an issue, and growth in our expansive prison population is trending mightily upward. And we're not easily meeting the skyrocketing costs of minimally aiding the less fortunate.

Why? Because the influence exerted by the venerable Byrd on Pollard, Peery, et al, is still felt today.

In this new century, the tax debate before us must be less about Keynesian economics and FDR kinds of programs -- and all the very legitimate downsides associated with their kind of thinking -- and more about the necessity for basic fiscal and accounting policies and practices that produce a structurally reliable $50 billion budget that inspires confidence in the very markets the conservative Friedman says are so important to us.

If Warner is to succeed in selling his tax-reform plan, he must show how his reforms are in keeping with conservative economic principles that will foster an expanding Virginia economy. If he can't do this, then it'll be trumpeted by his critics that the $500 million his proposal transfers annually from the private sector to the public sector is just another Democratic grab for taxpayer bucks to fund bigger government.

It's partly about economics, the dismal science, and partly about politics, the sobering one.