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Wall Street Journal

Editorial, February 19, 2004

Virginia Tax Reel

There's an effort under way in the Commonwealth of Virginia to raise taxes to record levels, and our guess is that John Kerry is paying close attention to how it plays out.

It's bad enough that Democratic Governor Mark Warner is trying to raise taxes by more than $1 billion. What's worse is that a GOP-controlled legislature that rose to power on an anti-tax agenda now wants to raise them even higher. If Republican Senate Finance Committee Chairman John Chichester gets his way, Virginians are looking at $4 billion in new taxes over the next two years. Governor Warner was elected in 2001 on a promise not to raise taxes, but this is his third attempt since taking office to do just that. Like voters in Oregon and Alabama, Virginians recently shot down two referendums calling for tax hikes. The problem is that Virginia's political class won't take no for an answer.

They've tried targeting taxes specifically for roads, and other popular things, but that didn't work. They've also tried playing the class card by claiming to raise taxes only on "the rich," but that hasn't flown either.

Mr. Warner's political innovation has been to package his latest tax increase attempt under the rubric of tax "reform." He wants voters to believe that they won't be paying more, some other saps will pay instead. If the democraticGovernor of a Southern state can get a GOP legislature to bite on this ruse, look for Senator Kerry and national Democrats to try the same line later this year.

Virginia voters have opposed tax increases so often because they realize that the real problem is spending. Mr. Warner has proposed a $59 billion two-year budget that includes $2.4 billion in new spending over the current two-year budget. Averaged out annually, state spending is up a record $6 billion, or 30%, in the past five years and $2.5 billion since Mr. Warner took office in 2002. Those increases outpace inflation, population growth and any rise in average personal incomes. All of this has been blessed by a GOP legislature -- which ought to be a warning to Republicans in Congress about their own spending spree.

Nevertheless, the state senate finance committee has just approved bills that raise taxes on, among other things, sales, tobacco, gasoline, businesses, deeds, car titles and vehicle registrations. Levies on taxable incomes over $100,000 would increase to 6.25% from 5.75%, and tax breaks for the elderly would be eliminated. If there's a difference between this tax "reform" and traditional tax-and-spend governance, we're at a loss to tell you what it is. Governor Warner is fortunate that Virginia's constitution doesn't provide for a recall and that he's limited to a single term in office.

Supporters claim higher taxes are needed to preserve "essential services," but don't believe it. Virginia's economy, like the nation's, is on the mend, and state revenue is growing faster than expected. Mr. Warner and his GOP allies are trying to sneak this tax increase into law quickly, before revenues balance the budget without it and they lose their opportunity to establish a permanently larger revenue stream.

Peter Ferrara of the Virginia Club for Growth, a fiscal watchdog group, notes that even without the proposed tax hikes the state could increase spending annually by 5.5% over the next two years. He also predicts that current revenue trends would bring in twice as much money as Mr. Warner's tax increases. "We should be talking about tax cuts, not tax increases," says Mr. Ferrara. Governor Warner has his own national ambitions and would love to be Mr. Kerry's running mate. If he can bamboozle Republicans into passing a tax hike on the cusp of an economic recovery, he'll have earned the honor.