Virginia: Gilmore Allies Jumping Ship

In his tenure as governor of Virginia in the late 1990s, Jim Gilmore was notable primarily for one thing: the cut in the state’s “car tax” he championed. It got him elected, and it was the issue he rode throughout his governorship. And lawmakers in other states took note: cutting vehicle property taxes has been a frequent bipartisan goal of state lawmakers for the last decade now.

But, as countless Virginia observers (and a bunch of angry lawmakers) have noted since then, supporters of the Gilmore car tax cut were sold a bill of goods. It turned out almost immediately that repealing the car tax was unaffordable, since the short-term surpluses that made the tax cut seem feasible were, well, short-term. And Gilmore’s tax cut has been a political football in the state’s budgeting process ever since.

Now, Gilmore has decided to make another run at statewide office, and is running against Mark Warner for the US Senate seat being vacated by John Warner. And he’s finding out what happens when a snake-oil salesman tries to fool the same people twice: it doesn’t work.

The Washington Post reports this week that Vincent Callahan, a Republican lawmaker who was instrumental in the initial passage of Gilmore’s car tax cut, is endorsing Gilmore’s Democratic opponent, Warner, in this fall’s race. The reason, according to Callahan: Gilmore’s misleading advocacy of the car tax cut last time around.

Callahan said Gilmore, Warner’s GOP opponent, misled legislators and the public about the state’s finances and the cost of his signature effort to eliminate the car tax when he was governor from 1998 to 2002. ‘The figures Gilmore used were so utterly erroneous and far-fetched that they were mind-boggling,’ said Callahan.

Of course, revenue forecasting is often more of an art than a science. But in retrospect, there’s little disagreement (from anyone except Gilmore himself, that is) that Gilmore lowballed the cost and the affordability of his car tax cut .

A Washington Post editorial noting Gilmore’s razor-thin primary win over a relative nobody for the GOP nomination offers a scathing review of Gilmore’s fiscal policy record:

At the heart of the Gilmore legacy was his insistence on ramming through a tax cut whose dimensions dwarfed his cavalier initial estimates, and his simultaneous approval of heavy increases in state spending, a strategy — if it can be called that — suggesting that Mr. Gilmore assumed that the boom times in Virginia would never end. He pursued his signature tax cut, a phased repeal of the levy on personal vehicles, even after it became crystal clear that the repeal would drain hundreds of millions of dollars from the budget and cripple state finances. He insisted on his course despite being warned — by fellow Republicans, among others — that it would eventually force deep reductions in spending on core state priorities including transportation and education. And he shrugged off specific, repeated and well grounded forecasts that Virginia was heading for an economic slowdown brought on by the bursting of the technology and stock market bubble — a slump Mr. Gilmore simply denied.
In Mr. Gilmore, Virginia had its very own Herbert Hoover. “State government is in sound financial shape,” he declared sunnily in August 2001, even as state lawmakers from both parties predicted a $500 million revenue shortfall in the commonwealth’s $25 billion budget — about 10 times Mr. Gilmore’s own projections and, as it turned out, itself an underestimation of the state’s actual woes. Mr. Gilmore’s allies
sometimes argue that no one could have foreseen the economic effects of the Sept. 11 attacks, which occurred four months before he left office. True enough, but also irrelevant: The problem had swollen to major proportions well before the attacks, and Mr. Gilmore ignored it.
He did so in part by budgetary gimmickry and sleight of hand of the sort seldom seen in Virginia, with its stodgy custom of fiscal prudence. When it became plain that the state’s revenue growth had hit a wall, a condition that Mr. Gilmore himself had said would preclude a further rollback of the car tax, he proposed a novel solution: conjuring revenue by borrowing against a one-time legal settlement with tobacco companies. That scheme, which encapsulated Mr. Gilmore’s poor judgment and fondness for budgetary trickery, elicited groans from Republican and Democratic lawmakers alike.
Today, Mr. Gilmore innocently states that on leaving office in 2002 he bequeathed a balanced budget and $1 billion in reserves. But the balanced budget was a fiction that papered over a yawning deficit with shenanigans such as requiring retailers to prepay their sales tax and employers to prepay their withholding tax. And the reserves, for which Mr. Gilmore bears no responsibility — they were statutorily required — did nothing to forestall the state’s fiscal crisis. It fell to Mr. Warner, who succeeded Mr. Gilmore as governor, to fix what quickly mushroomed to a nearly $4 billion problem.

Wow.

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Obama’s Loose Change

CBO says the deficit will reach $1.2 trillion this year. President-elect Obama says the red ink will continue to flow at this rate or faster “for years to come” unless policymakers “make a change in the way Washington does business.”

Obama is right, of course. And his words echo the message he used so successfully throughout the campaign. Change, he promised, that you can believe in. The problem is that the stimulus bill Obama is preparing mimics exactly the sort of cynical business Washington has been doing for decades.

It has become a drearily familiar formula: Democrats want to increase spending. Republicans want to cut taxes. So they compromise–by doing both. And arithmetic being what it is, the deficit explodes.

We may, in fact, be about to create the mirror image of what happened during the Bush Administration. In 2001, an ambitious new president rolled into Washington faced with a slowing economy, and armed with an aggressive new economic agenda and a promise to change the tone in the Capital. George Bush, of course, wanted to cut taxes. The then out-of-power Democrats wanted to spend more.

What happened? Democrats bowed to big tax cuts, and, according to CBO, revenues as a share of GDP fell from 20.9 percent in 2000 to 16.3 percent by the end of Bush’s first term. Despite his tough talk about bloated government, the President abandoned efforts to control spending. As a result, outlays ballooned from 18.4 percent of GDP to 20 percent. All the Inside the Beltway players came away winners, and the modest surplus Bush inherited turned into a deficit of 5 percent of GDP.

Oh, and by the way, only about half of that new spending was for the military. The rest went to domestic discretionary programs and entitlements such as Medicare and Medicaid.

Now the roles are reversed—the Democrats are in charge and the GOP is in the minority. And, to be sure, the economy is worse. But the story line is looking eerily familiar.

Obama suggests it will be different this time. He says that budget reform will fix all this—later. Today he appointed a White House aide to seek out waste and abuse. Sadly, we’ve heard all that before too. I await change that I can believe in.

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