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Vindication for Warner? State Is Named Best for Business

By Michael D. Shear
Washington Post Staff Writer
Thursday, August 24, 2006

Virginia's political leadership has had it tough lately, spending the first half of 2006 slogging through a bitter debate over the state's crumbling transportation infrastructure and arguing for months about the state's finances.

So it was with some excitement that the commonwealth received a bit of good news: Forbes magazine this month declared Virginia the nation's "best state for business."

Not "one of the best."

Not "among the best."

Virginia, according to the business journal, "dominated our rankings, placing in the top ten in each of the six categories we examined: business costs, economic climate, growth prospects, labor, quality of life and regulatory environment."

The magazine's editors said no other state came close to Virginia in terms of providing a climate friendly to business.

Gov. Timothy M. Kaine (D) immediately trumpeted the Forbes ranking, saying in a statement that it justifies "all of our hard work to diversify our economy, educate the workforce, provide support for existing businesses, and our constant efforts to strike the appropriate balance with low taxes and responsible regulations."

That's to be expected, because the magazine's praise was largely for his Democratic predecessor, Mark R. Warner , who presided over what the magazine called the "runaway winner" in its 50-state comparison.

Warner pushed through a $1.5 billion tax increase in 2004 that he and some Republican leaders said was necessary to balance the state's budget. The magazine noted that despite the increase, Virginia's overall tax burden for businesses was the seventh lowest in the nation.

More curious was the reaction of House Speaker William J. Howell (R-Stafford), who has been a consistent critic of the Warner-inspired tax increase.

In the news release issued by Kaine's office, Howell, too, reflected warmly on the past several years, making no mention of the tax increase he opposed.

"This ranking from Forbes confirms that what we've been doing for the past decade and more -- keeping the tax burden as competitively low as possible, ensuring regulations are reasonable, encouraging risk-taking entrepreneurs, and promoting our educated workforce -- is paying dividends for Virginia businesses and benefiting hard-working Virginians and their families," Howell said.

That's some praise for the recent leadership and quite a bit different from Howell's prediction in January 2004, when he paid $30,000 to Ronald Reagan's former budget director to predict the effect of Warner's proposed tax increases.

The study by James Miller said approval of the tax hikes would suck $10 billion out of the state's economy and could mean the loss of up to 28,000 jobs.

"Mark Warner's sales tax proposals would do extensive harm to Virginia's economy," said the report by CapAnalysis, the economics firm of which Miller is chairman.

"It's what many of us have been saying all along," Howell said as the report was being released.

At the time, Warner released his own economic study of the tax proposals, which also included a series of reductions to food and income taxes. His study suggested that the plan would stimulate Virginia's economy.

"The various tax reductions and the additional expenditures targeted to improving Virginia's business climate . . . will outweigh any plausible negative effects," Warner's report said.

The Forbes study would seem to bear Warner out.

When Republicans are asked about the increasingly good economic news for Virginia -- the state has been running a surplus for more than a year -- they often say the state might be doing even better if the Warner tax increases were not imposed.

And it's true that the tax increase ultimately imposed, though raising even more money than Warner's original proposal, was quite a bit different. The sales tax went up by only half a percentage point, not a full point. And the upper-income tax bracket was left alone. Howell's GOP takes credit for helping reduce the hikes.

But the Forbes report is especially good news for Warner, who is traveling the country, perhaps in pursuit of the presidency. His message: Look to his success in Virginia for clues to the kind of president he'd be.

Had Virginia turned out as Howell and Miller had predicted, Warner would not have much to sell to the nation. As it is, he's riding a wave of positive press to next year's Democratic primaries.

Expect the Forbes report to be Exhibit A.

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