Taxes

Richmond Times-Dispatch 9/9/07

STAUNTON - The Commonwealth Institute, a newly formed left-wing policy group based in Richmond, recently released its analysis of the state biennial budget. Billing itself as "nonpartisan" and "independent," the institute states that its primary focus is on how Virginia's budget and fiscal policies impact lowerand middle-income residents.

The analysis follows the typical liberal line of thinking that unfortunately pervades most linear minds trapped in two-year budget cycles. The path is this: Government-program growth is outpacing revenues from existing sources so we must prepare to have the courage, once again, to increase rates of taxation so that we may balance the upcoming biennial budget.

Early in its analysis, the institute decries any attempt to reduce spending as "knee-jerk reaction" and "slashing." Again, nothing new in the liberal mindset.

Our executive and legislative branches have worked well together to produce a system of governance here in Virginia that is the model for the nation. We have been recognized as the best-managed state for two years in a row with the best business climate in the nation for the same period. Perhaps the Commonwealth Institute should focus on policies that will help us stay the best in the nation.

Revenues to the commonwealth have increased by more than 50 percent in just three budget cycles - one of which included a recession where revenues were flat-to-declining. The primary concern of the institute's analysis is that projected revenues will not keep up with projected expenditures. When the state budget has been increasing so rapidly the past four years that a greater than 50 percent increase in revenues cannot cover expenditures, then Virginia should not be looking for ways to increase revenue.

If one were to project lower levels of income and expenditure so that one achieves a balanced budget, would one notice a difference in service delivery? Sadly, the left gauges the success of a program by how much is spent rather than what is produced. This line of thinking also assumes that every government agency and department currently is operating at peak efficiency, and that even a slight reduction in spending will negatively impact the delivery of services.

We should challenge ourselves to find ways to improve efficiency, thus better serving Virginia's citizens in a more cost-effective manner. We should be looking at ways to allow our state employees to increase productivity by offering them incentive-based pay packages, and giving them decision-making rights, an understanding of opportunity costs, increased and improved training, and honest opportunities for advancement.

By allowing our state workforce to focus on service delivery and productivity rather than completely spending its budget by the fourth quarter of every fiscal year, we can tap into what is potentially a tremendous level of synergy in our existing workforce.

Further, I would offer areas where savings can be found in the operations of state government:

The recommendations of the Wilder Commission;
The findings of the bipartisan, bicameral Cost Cutting Caucus and the Kaine administration's Operational Review Teams;
The more transparent budget document that was established with HB 1838 in 2003 (think non-state agency grants, which totaled $30 million this fiscal year alone);
Examination of reducing the rates of growth in our primary budget drivers - Medicaid and K-12 education. One health care group has estimated that hundreds of millions can be saved each year by reducing the rate of growth in Medicaid from 8 percent to 6 percent - 6 percent being slightly ahead of current population and inflation growth rates.

Wouldn't increased focus on areas like these make more sense than a shortsighted tax increase that potentially harms long-term economic growth?

I agree with the institute when it calls for tax reform. However, we quickly diverge when it comes to the definition of reform. I believe, as do many of my colleagues, that the tax code should strive for a broad base with the lowest rates possible so that the economy is encouraged to grow and that government interference is minimal.

Virginia's place in the world's dynamic economy must not be set by two-year mindsets with statist, linear, and short-term thinking. Virginia's governance model shouldn't just keep up; rather, it should be a model for change and innovation. The key element to that change is working in partnership with the private sector to provide the best possible public-sector services at the lowest cost to the taxpayer so that the burden of taxation does not inhibit economic growth.

Del. Chris Saxman represents Staunton and Highland County, and parts of Augusta and Rockingham Counties. He is the chairman of the General Assembly's Cost Cutting Caucus.

Friend, I signed the Americans for Tax Reform pledge not to raise taxes because I believe government, like any business or family, must function within a budget. We cannot continue to raise taxes for the sake of increasing government revenue and bailing out reckless government spending. When politicians spend wastefully and are then permitted to tax their way out of budgetary problems, there is no incentive to reduce wasteful spending, or for that matter, not to spend more. Despite this reality, some have been very critical of me and others who pledged not to raise taxes. Please take a few moments to read my recent Op-Ed on the topic and you decide.

Recently there has been discussion about those of us who have signed the Americans for Tax Reform pledge to not raise taxes. We have been called extremists, ideologues, and undoubtedly other less flattering words that have not yet found their way to the media. I would like to explain why I signed and continue to support the ATR pledge not to raise taxes. First, what does the pledge mean? It means that I will not support higher tax rates for the purpose of increasing revenues to the Commonwealth. Economic growth and the current rates of taxation should be able to provide the government with sufficient money to provide and maintain quality government services. Since I have taken office, the revenues to the Commonwealth have increased by over 50 percent in just three budget cycles, one of which included a recession where revenues were flat to declining. I dare say that few businesses and families have seen their income rise as dramatically as the government's has. This increase in revenues is directly related to the strong performance of the economy, not the tax increases of 2004. So, what should be done when we have an economic downturn and revenues to Commonwealth flatten or decline? Many of us in the legislature have been working very hard since the previous recession to reduce the cost burden of government while still producing essential government services--key word being essential. Non-state agencies do not rise to that standard during a recession or for that matter any other time. The General Assembly has created legislation that puts into place the Council on Virginia's Future (HB2097- 2003), which works with the Transparent Budget Act (HB1838 -2003) to set our goals and objectives, and direct funding to the same. That is a long-term steering of the ship to the calmer seas of government performance. An example of this in practice would be setting growth rates for Medicaid at 6 percent instead of 8 percent while still providing quality services. Hospital groups tell me that we can save up to $700 million per year as a result of this action alone. Another example, according to a very senior member of the previous administration, is to manage down over an extended time period (6-8 years) the workforce of just one department from 9,200 employees down to 5,000. That would result in aggregate savings of $200 million per year without harming delivery of services. Other smaller yet significant savings have been found in asking simple questions. The General Assembly asked one university where and how it negotiated its natural gas contracts, and as a result was able to save the taxpayers $1 million per year. Another $400,000 was saved annually when we asked why VDOT painted its trucks orange. They realized that it was not necessary and now that money can be used for Rural Rustic roads--another great money saving project Sound extreme? I don't think so. So what if we do all that and still "need" revenue to balance the budget submitted by the Governor? What then? My business experience has taught me to look at accounts receivable first. These are taxes that are due to the Commonwealth but have not been collected. Several years ago I wrote legislation to streamline this process in anticipation of another downturn. The Warner amnesty produced almost $100 million. Given the present rate of budget (economic) growth, one can reasonably presume $150 million will result from another amnesty. One can then look at tax exemptions as we did in 2004. These are individuals and businesses that do not pay taxes. In 2004, the estimates were in excess of $4 billion annually. Lifting exemptions on those who do not pay current rates of taxation, temporarily or permanently, does not violate a no-tax pledge. Rescinding tax credits like the $60 million tax credit that one tobacco manufacturer received in the 2004 tax "reform" package should also be considered. With all the aforementioned, we have not even discussed the Rainy Day Fund. What is the best answer though? I believe the answer is to reform and manage government operations every day to deliver better services at a lower cost. That way, conversation about increasing government revenue is as unnecessary as increasing the rates of taxation. Only then we can talk about real tax reform. Instead of calling us extremist ideologues, maybe it's more appropriate to term those of us who pledged not to raises taxes as responsible stewards of government revenue--revenue that belongs to the taxpayers of the Commonwealth. You decide.