May 9, 2007 [LINK / comment]

Senator Hanger on tax reform

Anyone who thinks that Sen. Emmett Hanger is "running away from his tax-hiking record" (as D.J. McGuire stated) should take a close look at his detailed policy statement on tax reform at his new blog, "The Responsible Republican." (Actually, his blog is almost two weeks old already, and I'm just now getting caught up with it!) Sen. Hanger really tells it like it is, making some of the same points he made to the Staunton Republican Committee three weeks ago:

For the overwhelming majority of the families that I represent, the net impact of the tax package was a tax reduction rather than a tax increase. The implication that it was the "largest tax increase in Virginia's history" is totally bogus.

The major changes that figure into this are:
  1. Income tax was decreased slightly for everyone, no matter what income level by increasing the personal exemption amount from $800 to $900
  2. Sales tax was increased by one half of a percent (this was the major component of the tax increase), but two percent was taken off of food
  3. The estate tax was eliminated
  4. Cigarette taxes were increased and the proceeds directed to health costs
  5. Recordation fees were increased for real estate transactions
These changes produced approximately $700 million per year in additional revenue to the state, but roughly $500 million per year of that amount was returned to the localities to pay for existing programs, primarily education and public safety. The remaining additional revenue was allocated to higher education costs (reducing the need for increased tuition) and mandated Chesapeake Bay cleanup costs.

The statement that the additional revenue was used to "create new liberal social programs" is totally bogus.

The point about returning most of the additional revenues to the localities is especially important in light of recent controversies about property tax rates in Staunton and Waynesboro. Obviously, Sen. Hanger knows his stuff, inside and out. As they say, read the whole thing.

On a more general level, I am usually very skeptical whenever I hear about a tax hike or tax cut of X million dollars; any such scalar (one-dimensional) measure is bound to be misleading, because it depends on the time frame and economic projections, which are never certain. It's better to compare changes in rates for particular kinds of taxes, restricting the focus to single-year intervals, and then to evaluate the overall revenue effect after the fact.