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It’s always amazing how liberals seem to be living in some sort of fiscal never never land when it comes to taxes. Last week, Rick Howell gave us an example of this in “The Liberal Agenda” as he took Governor Bob McDonnell to task for not proposing new taxes to pay for transportation projects.
In the alternate reality they live in, there’s no limit to how much taxes can be raised, and raising taxes has no impact on the economy. Maybe they suffer from the same version of myopia that corporations fall prey to when they move manufacturing operations to China to take advantage of the fact that Wang Fang will work for a fraction of what Bubba was working for. In doing so, they seem to lose track of the concept that people who don’t have money don’t buy things. If Bubba gets laid off and has to take a much lower paying job, then his purchasing power is reduced. If Bubba keeps his job, but liberals raise his taxes, then his purchasing power is reduced. Either way, he buys less and business, overall, suffers.
Of course, if Bubba has good credit, he can keep on spending by borrowing. That’s what American consumers have been doing for some years now, and they have finally maxed out. One of the negative features of the current economy is that Americans, for the most part, are head over heels in debt. Most can’t dig themselves any deeper into the hole and many are trying to dig themselves out by paying down that debt.
This is why proposing new state taxes is a very bad idea at this time. People have already reduced what they are spending, and new taxes will leave them with even less to spend. It will also prolong the deleveraging agony as they will also have less to apply to all those debts.
Reducing the amount of money that people have to spend by taking more of their money through taxes is not a recipe for job creation. It’s just the opposite because local small businesses, the ones who are not going to be outsourcing to China, are the ones that will feel the impact of everybody’s reduced buying power. The new tax may not take a large amount from each person each month, but when multiplied by thousands of people, the impact will be enough to add a new drag on the economy.
New transportation construction may create some jobs, but these will go away after the project is completed. There’s also no guarantee that eliminating a highway bottleneck in a large urban area will suddenly bring companies to Virginia, either. There are other very important factors that figure into a company’s decision, and taxes are one of those.
Besides, none of this will really do much for small businesses — the restaurants, florist shops and such that will see less revenue coming in. They will see less revenue, should the Commonwealth decide on new taxes, because higher taxes would leave their customers with less money to spend. All these small businesses, in turn, are not going to shell out for new equipment, or hire new employees to meet demand that isn’t there.
Granted, there are transportation projects that need to be addressed. They’ve needed to be addressed for some time, but now is a lousy time to decide that we must immediately get started and raise new tax revenue for that purpose. Last spring, if I had procrastinated a few weeks longer on a project that involved a ladder, giving my eyes time to adjust to my new glasses, I would have saved myself a trip to the emergency room.
Governor McDonnell’s approach is the correct one. As he and the General Assembly develop the Commonwealth’s next biennial budget, it’s important for them to concentrate on getting by on less. That’s what all of us in the private sector, who have endured pay freezes and furlough days, have had to do.