Kaine may renew Virginia's car tax debate amid budget gap
Thursday, December 17, 2009
More than a decade after once-common "Ax the Tax" bumper stickers have disappeared from cars in Virginia and the political potency of a Republican promise to eliminate the state's car tax has seemingly waned, what to do about the annual levy has hardened into one of Virginia's most intractable political dilemmas.
The state spends almost $1 billion dollars a year to shoulder part of the tax for car owners, which pleases almost no one. Many Republicans want the tax eliminated; Democrats say the relief program is a drain on state resources.
But in a divided government, neither side has shown the political will or muscle to force a resolution.
Now, weeks before leaving office, Gov. Timothy M. Kaine (D) is considering opening the emotional debate again, in the budget he will submit to the General Assembly on Friday, setting up a possible confrontation with Gov.-elect Robert F. McDonnell (R).
Kaine has said repeatedly that he is considering all options for closing a budget shortfall estimated to reach $3.5 billion over two years, including rolling back the amount the state spends each year to provide tax relief to car owners.
In a replay of years of debate, Republicans have been warning Kaine to stay away from what has become a third rail of Virginia politics.
McDonnell, who will propose changes to Kaine's budget proposal shortly after taking office next month, vowed last week that he would undo any adjustments Kaine makes to the program.
"I said very clearly during the campaign and since then that I'm not going to raise taxes," McDonnell told reporters. "And repealing a significant tax reduction, like the car tax cut, I would view as a tax increase on the citizens. . . . I'll find other ways than that to balance the budget, if that were proposed."
Kaine is considering other options, too. He has said he will propose deep spending cuts. He could also raise revenue by phasing out the dealer discount, which allows retailers to retain a small portion of the sales taxes they collect.
But after reducing budgets by $7 billion in recent years, Kaine has made clear that tax increase proposals are not off-limits. On Friday, he exchanged icy letters with leading conservatives who urged him to write a budget without them.
"While I appreciate your thoughts regarding the burdens faced by our citizens and businesses in the worst economic crisis since the Great Depression, your letter conveys a failure to grasp the stark realities of the coming budget," Kaine wrote to the group of four legislators and Lt. Gov. Bill Bolling (R). "We are far beyond the stage of eliminating inefficiencies or making merely difficult cuts."
With shortfalls spiraling so much that Kaine will probably order further layoffs and might cut education funding, car tax relief makes an inviting target.
Car owners pay the tax, which is based on the value of their vehicle, to local governments. Gov. James S. Gilmore III was elected in 1997 with a pledge to do away with the levy. At the time, Gilmore promised localities that they would not lose in the bargain. Instead, he proposed that the state reimburse local governments each year for the costs of cutting the tax.
He suggested phasing out the tax. But as costs to the state rose, lawmakers capped the local reimbursements, first limiting relief to 70 percent of car owners' tax bills and then to a flat rate of $950 million statewide each year.
The figure makes the costs of reimbursing local governments for car tax relief the sixth-largest driver of growth in the state budget over the past 10 years, according to state auditors. It also means that residents in more affluent areas such as Northern Virginia, where local governments have set higher car tax rates and more people own expensive cars, receive a greater share of state relief than poorer and more rural areas.
"It's reverse Robin Hood," said Senate Majority Leader Richard L. Saslaw (D), who opposes the program even though his Fairfax constituents benefit the most. "I try to tell these people in other parts of the state, if you want to give the wealthiest county in America a gift, I'll take it. But it's your public schools that are being annihilated."
If Richmond did away with car tax relief funding, however, owners would probably face an immediate jump in their yearly tax bills, at a time many Virginians are suffering in the ailing economy. Some residents' tax bill could double.
"This is not the time, in this time of financial crisis, to pass that burden along to working people," said Gilmore, who left office in 2002.
Instead of scaling back car tax relief, Gilmore said, Virginia should eliminate the tax.
"In my view, it's larger than the dollars. It goes to an overall view of what you should do with government dollars," he said.
Republicans think McDonnell's victory of more than 17 percentage points gives him a mandate. And unlike in past years, when the GOP was split over whether car tax relief was a good use of state funds, the party seems united behind McDonnell's opposition to eliminating it.
Still smarting from November's election, Democrats in the legislature have also shown little appetite to reopen fights over the car tax. Kaine, too, might find it unappealing to invite the kind of partisan uproar that would be ignited if he looked to the car tax weeks before leaving office.
"Kaine's had to face more budget cuts and revenue drops than anybody in modern Virginia history. And yet, for three and half years, he's been absolutely silent and taken no action on it," said Neal Menkes, a Senate budget analyst who now works for the Virginia Municipal League. "If he doesn't touch it, I don't think anyone will."