Friday, May 16, 2008
Tax the fellow behind the tree
From the RoundTable blog
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Dan B. Fleming
Fleming is a professor emeritus of education at Virginia Tech who lives in Blacksburg.
"Don't tax you, don't tax me, tax the fellow behind the tree" is a classic quote from former Sen. Russell Long of Louisiana. That is the dilemma facing all levels of government when it comes to levying taxes. People expect governmental services but are too often reluctant to pay for them. Of course at times the public has a good reason for skepticism in light of reports of governmental corruption and waste, seldom a problem in Virginia.
Gov. Kaine has proposed a tax package to address the large transportation funding gap that not only applies to new forms of transportation, but addresses the severe shortfall in statewide road maintenance needs. This package proposes increasing the tax on vehicle registration fees, the auto titling tax and a tax on real estate sales plus a regional increase in the sales tax in Northern Virginia and Hampton Roads.
Virginia is a low-tax state and is among the wealthiest states. It is consistently ranked among the best-managed states, but unfortunately also ranks low in a number of areas, including funding of social services and education. In times of financial stress, the state has cut back on funding, but unfortunately, when times are good, has failed to sufficiently restore the cuts -- as was the case in funding for higher education -- resulting in skyrocketing tuition costs. The state also too often dumps unfunded mandates on local governments, resulting in higher property taxes.
State leaders have to address short-term transportation concerns such as road repairs, but also need to face up to long-term issues such as how to change urban planning to prevent greater road congestion. Kaine in his proposals calls for dedicating some of the new funds to finance mass transit, a good first step.
But state transportation funding concerns are only the tip of the iceberg. We face looming problems such as an aging population and a drastic shortage of geriatric personnel and funding to help cope with this upcoming demographic tidal wave. In addition, over a million Virginians are without health care and our prison population grows ever greater. We find heavy dropout rates in many schools while we fail to fund essential preschool programs, and environmental problems abound.
State leaders needs to come to grips with the big picture, but being the only state to limit the governor to one term makes planning difficult. The starting place is to address the essential needs of the state and then to determine how to pay for such needs.
New approaches to tax sources should be considered. It was unfortunate that the state recently eliminated the estate tax benefiting only a handful of the wealthiest Virginians. The estate tax should be reinstated.
Another tax source that a number of states are turning to is that of service taxes. When sales taxes were established decades ago, services were a relatively small part of consumer spending. In recent years spending on services has greatly increased, yet we still rely on taxing only goods. Increasing the general sales tax makes our tax system even more regressive, hitting low-income taxpayers the hardest. Taxing nonessential services such as car washes, haircuts, manicures, health clubs, sporting events, movies, concerts, landscaping and country club memberships are much less regressive, since many services are consumed by wealthier taxpayers. Some states tax hundreds of services with exceptions for medical and other essential items.
Why is changing tax policy so difficult? Cutting taxes is easy and people may favor tax increases as long as they aren't "the fellow behind the tree." Raising taxes is tough since there are lobbyists for nearly every thing on the table to be taxed ready to fight tooth and nail to make sure that their special interest is not taxed.
Before the General Assembly passes any new taxes, legislators should look at all the options available to them or risk making our tax code even more regressive and further outdated. In a recession, increasing taxes is obviously difficult, yet gutting essential services is more damaging over the long term. Let us also hope that the weakest members of our society with little voice in the process are not forgotten.
