( – promoted by lowkell)
by Paul Goldman
Yes, I have said the Governor’s Transportation plan is fatally flawed. But so was Democratic Governor Jerry Baliles’ 10-year plan in 1986, which Democrats supported despite my showing this fatal flaw: it purposely inflated the revenues but not the cost of construction in order to get the votes needed for passage. This is one key reason it didn’t work as promised, as NOVA and other places got screwed in the end. Yet NOVA officials and others still praise Baliles.
I get that. But this should not obscure the lesson here. As regards the McDonnell plant, it has the same basic virtue as the Baliles plan; the support of the sitting governor. Without such support, no plan could be passed. So transportation advocates back 27 years ago went along with the Baliles plan, hoping they could fix it.
Why? Because it was the best they could get at the time. Governing is also the art of the possible.
In 2004, Governor Warner, as the price for his plan, made the tax code more regressive (higher sales taxes) and set up the eventual elimination of the estate tax. But with the federal estate tax coming back under President Obama, and the way a state estate tax could be structured, this amounts now to a loss of substantial revenue to the state, despite it not requiring any real taxation of Virginians liable for the federal estate tax. It was, in that regard, penny wise and pound foolish. It was always a high price to pay. But one had to weigh the pros and cons.
The point being: taxing measures are by their vary nature products of compromise. Moreover, the “good or bad” nature can seem one way at the beginning but quite another 20 years hence. Harry Byrd’s Higher Gas Tax/Pay As Go transportation approach seemed very progressive at the time and was applauded as such. But a generation later, the refusal to issue public debt for needed projects became fiscally irresponsible, and is a key reason why NOVA and Tidewater face such transportation problems today.
SO, LET’S GET TO WHERE THE RUBBER MEETS THE ROAD.
All things considered, would Virginia be better off with the basic McDonnell plan for transportation, or should Democrats instead work to kill it (which I believe they can)?
First, the discussion starts here: The continued delusion of the state’s leading self-described progressive editorial boards and others is becoming a real obstacle to progress. They continue to advocate for a lot higher tax revenue: but that is not going to happen!! So if that is all they can bring to the discussion, then they are a net negative right now. We are dealing with the art of the possible, not the possibilities of art.
Bottom line: THERE ARE NOT GOING TO BE ANY HIGHER TAXES THAN THE MCDONNELL PLAN. Indeed, history suggests that for any plan to pass, he will have to take less.
Second: For Republicans,the major political attraction of the McDonnell plan is the ELIMINATION OF THE GAS TAX. Is this good policy or even common sense, eliminating the biggest user fee the public is willing to pay especially in the context of road expenses? Of course not. But like it or not, indeed fair or not, the plan does have to be enacted by politicians up for reelection this year in the House of Delegates, with a huge GOP majority. Plus the Senators are already looking over their shoulder at the next election.
Third: Since the editorial boards and others don’t support putting any of it to a referendum, then THEY HAVE TO RELY ON THE POLITICIANS TO DO IT.
Fourth: The next major attraction for Republicans is the governor’s clever politics of using projections of huge increases in internet sales taxes and catalog sales revenues as part of his transportation plan. Does his plan make good policy sense here, since he effectively is using this maneuver to establish a new distribution formula for this fastest growing part of sales tax revenue, taking money away from education/localities and instead dedicating it all to transportation? Of course not.
But it is also true that there is a huge amount of future revenue here and it is a way to get that level of revenue WITHOUT HAVING TO RAISE TAXES. Why? Because, for example, and contrary to conventional wisdom, the sales tax on Internet sales is already due; the taxes are ALREADY ASSESSED. However, due to a 1992 Supreme Court decision, many of those selling stuff over the internet can not be forced to collect the taxes, unlike a store or chain with an actual physical presence in the state. Thus, Republicans can vote for it without being accused of raising taxes.
Fifth: Under the rubric of tax reform – substituting a sales tax for a gas tax – Governor McDonnell puts in place a new formulation which will raise more money over time than not only the current tax, but even a moderately higher gas tax. You might not like the way he did it here. But for those who believe the maintenance money is drying up (which it is!) this is something that helps over time.
NET, NET: Assuming you believe that the state desperately needs more money ASAP to fix a growing transportation problem, then Governor McDonnell’s plan is the biggest, the boldest, and most comprehensive since Harry Byrd set the parameters of such a decision nearly a century ago.
SO AGAIN: WHAT SHOULD DEMOCRATS DO WHERE THE RUBBER MEETS THE ROAD?
The options are not hard to derive. They could fight for a plan reflecting their policy views. This would include higher gas and/or sales taxes and a totally different distribution formula for internet sales and catalog revenues. It would include other fees, etc. It would also be DOA, if it lived long enough to get from the printer to the General Assembly building.
Bottom line: THERE IS NO CHANCE OF A DEMOCRATIC PLAN PASSING THIS YEAR.
Even with a Democratic governor next year, there is no reason to believe right now such a Democratic plan would pass in 2014 or any year thereafter. This leaves Democrats two choices as a practical political matter.
One: Provide as many votes as possible for McD,and hope he can get enough GOP votes to pass it. This is the least attractive option for sure.
Two: Negotiate for some sensible improvements, and hope McD can get enough GOP votes to pass a McDonnell-lite plan.
SO WE HAVE TO ASK: What tweaks would McD and his Republican allies accept? In order of the politics involved, my hunches:
1) Right now, 1/2 a cent of the current sales tax sales tax is dedicated to transportation (the Baliles Tax from 1986). The McD plan wants to up that to 3/4 of a cent (from non-internet sales tax revenue). Democrats can’t accept this…AND MCDONNELL KNOWS IT! In my view, he included this provision KNOWING HE WOULD GIVE IT UP as a “concession.” Very smart politics, do Dems can get this. GOP House of Delegate candidates gain nothing by refusing to change this.
2) The car registration fees and fees on alternative fuel vehicles can be changed. There are any number of permutations. The actual money raised here is not a major part of the plan. My gut says you might be able to raise a little more money here, but as a political matter, it might not be worth pushing. Dems SHOULD BE ABLE TO GET THIS.
3) The distribution formula on internet sales tax revenue is problematic since it puts a way higher priority on transportation than education. That’s not my politics. But this is likely the nut in the coconut for the governor, for he has finally – after trying to find magic money with ABC privatizing, off-shore oil royalties, a chain of toll booths along the North Carolina border and borrowing against future revenues – found a legitimate stream of new cash. Since Congress has to eventually allow states to collect this money, even Amazon and the other Internet folks concede as much. Thus, the politics is tricky here, since too much of a tweak could kill everything.
My gut: talk it over with the governor. If he doesn’t want to budget, cut some deals on other legislation but get him to agree to sunset the distribution formula at 10 years so it has to be redone. Why? First of all, based on all the studies I have seen, there is no way to know with any real certainty how much new revenue is going to be generated by the expected federal allowing the collection of these Sales Tax revenue. The governor’s number is good faith I presume. But in Indiana for example, their non-partisan experts said the new revenue would be between $33 million and $398 million — I kid you not! There are many reasons for the uncertainty. So a sunset provision is good policy and gives us time to see what is happening. So: DEMS CAN GET A LITTLE SOMETHING HERE.
4) Give localities the legal power to pass, if they want, a local gas tax. We need to keep the user fee concept alive. Localities would still have the right to ask the GA for permission to hold a regional referendum for a sales tax as some are doing right now. But they might find a local gas tax fits individual or regional needs better and like I say, it keeps the user concept going.
5) A few other side understandings on other education bills for instance would seem doable in the negotiation.
SUMMARY: Ideally,there should be a statewide referendum asking the public, as was done years ago, whether they want to make a fundamental change in how we pay for transportation. But if that doesn’t seem possible,the question is thus: Is the Governor’s decision, admittedly poor policy, to substitute a sales tax for a gas tax, in of itself reason to kill his transportation plan?
NO. This is politics, not a graduate seminar on Smart Growth Policy. It has been 27 years since a governor has put something of this magnitude on the table, a Republican at that. If he doesn’t have enough Republican votes to partner up with the Democrats to pass it, then of course push the kill button.
But ASSUMING HE CAME TO PLAY, then Democrats have to make a very tough gut call.
The easy play is for Democrats to say NO, based on good and sufficient policy reasons, the explanation easy to give, and as Henry Kissinger might have said, it has the added advantage of being true. But again; tax policy, more than most if not all other such things, is rooted in the art of the possible and nothing more.
The question is therefore this way: All things considered, would passing something along the lines McD wants help or hurt the state going forward? Or put another way: What are the odds of another Republican governor doing better, or a Democratic governor doing better in the near term Answer: From what we can reasonably foresee right now, very low possibility.
To be sure, there is no way to know whether McD has the votes on his side of the aisle, or whether this is just good optics for him. I have to assume he is a serious player here.
Moreover, if you can get a local option gas tax, this does allow key areas with high out-of-state drivers, to tap into that revenue stream a lot better than the local sales tax. So this might be attractive to some of their leaders.
Bottom line: For a Republican, Governor McDonnell has likely gone as far as he can at this time. My gut is that he will have shave back the sales tax a bit to make it revenue neutral with the disappearing gas tax for the first five years.
So yes, it is more optics than optimal. He is more for political image than ideal policy making. But if it is the best that can be done right now, should Democrats take the risk of being seen as the one’s who killed it?
It is a difficult call, but sometimes you have to take what you can get and hope to improve upon it later on.