Governor McDonnell rolled out his proposal to end the state’s monopoly on the sale of alcohol less than a week ago. And while I expected to see the criticism he’s gotten from the left, I was surprised by the amount of criticism he’s gotten from those on the right. While I can understand Democrats disliking the proposal – anything that he does that is positive for him is a negative for them – I can’t understand why anyone on the right is being critical and repeating newspaper speculation that wasn’t true.
D.J. McGuire over at Bearing Drift has been vocal in his criticism of the Governor, freely repeating Washington Post talking points that ended up not being included in the final proposal, and decrying it was “fun while it lasted.” Why any conservative is taking anything the Post says about McDonnell at face value makes little sense to me, but attacking the Governor for a proposal that he made a key point of his campaign makes even less. And I can’t understand why a fellow Republican is more willing to give the Washington Post the benefit of the doubt rather than the leader of our party in Virginia.
The Governor has made it clear that there are no tax increases in the proposal. Why call him a liar – especially when he’s not? The bottom line is simple: there are no tax increases in this proposal. None.
I’m quickly losing patience with the end-all-taxes-now part of our party. I’m as fiscal conservative as your most fervent Tea Partier, but I recognize that the government needs tax revenue in order to pay for the legitimate services we expect and demand from government. Things like education, law enforcement, the justice system, roads and transportation cost money. We can’t raise that revenue without taxes. We all know that we need to spend billions to get Virginia’s transportation system back to where it needs to be, and we can’t expect the Federal government to bail us out. So the Governor, as part of an overall attempt to right our fiscal ship, proposed to privatize the ABC stores, with the goal of raising money for transportation. The goal was never to reduce the burden on business or cut taxes on the alcohol industry. The expansion into previously state run areas will result in a significant benefit to the alcohol industry. Neither they nor conservatives who are quick to find a tax increase in any revenue raising program can’t expect that the Commonwealth isn’t going to regulate those sales. This isn’t the Old West.
For those who haven’t seen the Governor’s proposal, Jim Riley has it up over at Virginia Virtucon here.
D.J. and other conservatives attacking the Governor are doing their best to redefine anything that raises revenue for the Commonwealth into a tax increase. But just because they can spin the announcement that way doesn’t make it so. Most of their criticism is laughable. For instance, giving bars and restaurants the choice of either buying from wholesalers at a 2.5% tax rate or buying from retailers at the usual 5% tax rate does not equal a tax increase. How can it? The restaurants and bars didn’t have any choice before when they were purchasing from ABC – they had to pay same rate as anybody else did. And that same rate included a 69% markup over what the Commonwealth paid from the producer AND a 20% excise tax on top of it. Wholesalers will be selling the alcohol at a lower, market set rate and they’ll be delivering the liquor directly, rather than having the retailer deal with transportation on their own. That’s going to significantly reduce the price of alcohol for them. They will be saving money. Right now, we don’t have distilled spirits wholesalers in Virginia at all, because the state handles all the sales. So how anyone can argue that what will, in the end, be a total net reduction in the price of alcohol for bars and restaurants is actually a tax increase, I have no idea. It sounds a lot to me like the claims that you can raise taxes even when the dollar amount a taxpayer actually pays goes down. It doesn’t make any sense.
These conservatives also decry the “wholesale license charge” as another tax, but I don’t know of any business in any state that is allowed to carry on – especially a business like wholesale liquor sales – without some kind of a license. Calling the need for a new license – part of the regulatory scheme we’ll need to adopt to deal with the end of the state monopoly on booze – a tax increase is beyond a stretch. It looks like an attempt to go out of your way to attack the Governor for no good reason. Not every beer and wine distributor is going to want to carry distilled spirits, so the license is optional – it only will be applied to those who choose to engage in that business. No one would argue that if a grocery store that had an existing beer and wine license wanted to sell drugs through a pharmacy on the premises it shouldn’t have to get a license to do that – the concept is the same. It’s a different business and it needs a different license.
Finally, the Governor is being attacked for changing the liquor tax scheme from a 20% excise tax to a $17.50 per gallon tax. Because of the change and a likely increase in sales, the change will likely net millions more in revenue than the 20% rate would have. But how is it a tax increase when the formula has changed so much and the increased amount of revenue also takes into account increased sales? If you sell one gallon of hard liquor for $100, under the old rate you’d pay $20 to the government. Under the new rate, you’d pay $17.50. How is that a tax increase? If anything, it’s an incentive to sell more because the more you sell, the less that $17.50 per gallon is going to cost you net.
For example, Maker’s Mark (my bourbon of choice) costs $27.90 for a 750 ml bottle. Google tells me that there are about 5 bottles of 750 ml to a gallon (3785 milliliters to the gallon). Under the current system, if I bought a gallon of Maker’s Mark, it would cost $139.50. 20% of that is $27.90. Every fifth bottle was going to pay the excise tax. Under the new system, that fifth bottle isn’t completely eaten up by the tax ($17.50 vs. $27.90) and the more expensive the bottle the more significant the profit on that 5th bottle. Again, how is that a tax increase?
This isn’t smoke and mirrors and it isn’t some kind of trick. There’s no reason to call something a tax increase when it’s not – not a single tax that currently exists is being increased. Calling something a tax increase necessitates 1) that there is an existing tax and 2) the amount the taxpayer pays is going up. That’s not happening here. The excise tax on beer is staying the same. The excise tax on wine is staying the same. The retail sales tax is staying the same. You’re giving retailers a choice on a either a 2.5% or a 5% tax, one new license fee for those distributors who want to go into the distilled spirit wholesaling business, and one altered tax arrangement that is pegged to sales, just like the old one is will actually save retailers money. So why all the sturm and drang?
Well, the conservatives argue, the Democrats will attack this plan! So? They’ll attack any plan to fund transportation that doesn’t include an increase in the gas tax. Why does anyone care what the Democrats are going to say? In the end, this is the best way of raising revenue for transportation. Democrats can call for all of the legitimate tax increases they want, but the people of the Commonwealth don’t want them – if they did, Creigh Deeds would be governor.
For all of those Republicans who are complaining about what they call tax increases in this plan are missing is that if this plan goes down, we’ll may very end up with the real tax increases Democrats dream about in order to pay for the transportation funds we need. If you think this plan is bad, you either don’t think we have a transportation problem or you’re okay with real tax increases on all Virginians. That’s short sighted and it doesn’t make any sense. This is the best plan out there to provide needed boosts to our transportation infrastructure funding without raising taxes on Virginia’s working families in the middle of the worst economic environment since the Great Depression.
This plan is something that all of us on the center/right should all support and it’s one of the reasons why I supported and voted for Bob McDonnell. It’s unfortunate that so many of my colleagues are so quick and eager to turn on him.
Brian, you’ve made a factual mistake, which isn’t normal for you. Bars don’t currently pay sales tax when they buy from ABC for resale. Now, of course, they don’t actually get a wholesale price — the pay the same per bottle as you and I do — and they don’t get delivery, they’ve got to go pick it up. So the difference between no sales tax and the 2.5% convenience fee IS a tax hike. However, the people who would have to pay it are mostly telling me they don’t mind because they think they’ll come out ahead if they actually get the chance to buy at wholesale prices.
The sticking point is going to be tripling the number of retail outlets and allowing sales at Wal-mart and 7-11. That’s a huge change in Virginia’s culture. It’s one McDonnell would not have voted for himself when he was in the House.
“In the end, this is the best way of raising revenue for transportation.”
Really? Our transportation needs are not one-time costs, unfortunately. And the need is many times greater than $458 million (assuming the state gets that minimum). The tax revenue from alcohol sales will still go to the General Fund. So what does it get us? It won’t appreciably make any difference in congestion for us or Hampton Roads. And it doesn’t help the state keep up with the minimum amounts it needs to spend on maintenance.
I’m for privatization in principle. And if he keeps GF revenues whole from the process, great! But let’s not tell people this is something that it is clearly not.
Steven, it’s not a tax hike. It’s effectively a new tax. It wasn’t there before. But, again, as I noted and as you’ve noted, the change will likely result in a decrease in the amount bars and restaurants pay and that can’t be considered a tax hike under any rational definition.
tx2vadem — stay tuned. Interesting news story regarding re-stacking of VDOT (post audit)is coming.
This Governor is making good on promise after promise. I’m with Brian, here.
The alternative was tax-raising Mr. Deeds….so shut up already.
Just wanted to say, as a Dem, that I’m not a big fan of gas taxes. Mostly because that hits every single American in a non-progressive way, especially given that new cars often have better gas mileage than old cars, but it’s harder to buy a new car than ever, given stagnant wages, high unemployment and tight credit. So yes, we can say that people who choose to drive SUV’s pay more, but so do people who can’t afford to buy a more gas efficient car at this time or the near future, and that rankles in my Democratic soul. But if we want to bring back the estate tax on the very rich that existed until a few years ago, I’m all ears!
On the issue of ABC stores, I think both sides are using easy explanations for what is a very complicated process. It’s fair to say, if this is a new tax, that McDonnell raised taxes, even if it effectively doesn’t change what people are paying. Just because something is rhetorical doesn’t mean it’s inaccurate. On the other hand, it does seem, after looking into the issue, that Virginia’s liquor laws are needlessly burdensome and complicated, especially on people who own a restaurant as a small business, so while this may not be the solution we are looking for, I don’t think we should simply say that there isn’t a problem.
And for the record, I don’t drink, so this won’t affect me at all!
Gretchen,
I normally respect your comments, but c’mon here!
We have been making fuel-efficient cars in the US, as well as importing them, for about 40 years now since the first Arab Oil Boycott in 1973. We have had a gas-guzzler tax in the US since 1978. Just how many working class families do you know who are driving 30 or 40 year-old cars? On the other hand, how many good ole boys are you talking about who have to drive a Ford F250 V-8 because they might go hunting five or six times a year? The gasoline tax in Virginia is 19.5 cents per gallon and hasn’t been raised since 1987. 1987! That was when gasoline sold for 95 cents a gallon.
As to people who own a restaurant as a small business, what is so complicated about buying your hard liquor from the same wholesaler who delivers your beer and wine, instead of going to the ABC store and buying it retail?
Finally, as to the estate tax, do you know what that tax does to family farms and small businesses? It ain’t about multi-millionaires, sweety. It is about inheriting the family business or selling it to pay the taxes.
I have lost a lot of respect for you, lady. That was a knee-jerk, BS comment that you never would have posted if Tim Kaine had made the exact same proposal.
Yes, I know what it does to family farms, because my family is one of the 5% of Americans who still actually owns one. It’s complicated by the fact there was once substantial amouts of coal on it (since stripped) and now has substantial amounts of natural gas. When my grandmother goes (and I hope she continues to live another 100 years) it is not going to be pretty, but the tax issue will certainly be the last thing on our minds. Oh yes, I know quite a bit about the estate tax. My mother-in-law died last year and my husband was her executor. Woo-boy!
I just think that there is something deeper about this issue than anyone is able or seems capable to talking about. We each keep trying to simplify it down into black and white points to score political points not only against “our” side, but also to drum up support for stragglers who are also on “our” side. It’s one of those issues that seems to cut across party lines a little too close for either party to be comfortable.
Do I support what McDonnell is proposing? No. I have my reasons, but what I’m trying to say is that while I don’t agree with this plan, I’m not interesting in saying that we should have NO plan. We have several things here that seem to be true: we have terrible issues in transportation not only here in NoVa, but also in places around Richmond, on the bridges in Hampton Roads, on newly expanded routes like 29, and on route 81 which can be wall to wall trucks for hours on end and causes more accidents than ever.
In addition to that, we have a byzantine way of handling liquor sales in the commonwealth that make life difficult for restaurant owners who might really benefit from some sort of plan.
On the OTHER hand, anyone who has lived in an inner city where cheap liquor is available 24/7 at your local CVS knows this is NOT the image of Virginia most of us want to live in.
And throw into THAT the fact that the only reason we have any kind of (ahem) “surplus” is because the federal government came in and stimulated the economy and everyone from McDonnell to Cantor all down insisted this would don’t a bit of good, but their rhetoric sounds awfully familiar, at least to me.
(wry tone) And for what it’s worth, it was Tim Kaine who did make the estate tax change, so yeah, I’m on the record of being vocal about BS when my side does it too!
Difference here is that I don’t see this as pure BS. I see this as people making BS out of issues that are actually very real.
Oh, and yeah. It still makes me feel sad and angry to write and look up at it and see it read September 11th in the header. Wonder how many years will go by before I don’t feel that way any more?
“But if we want to bring back the estate tax on the very rich that existed until a few years ago, I’m all ears!”
The problem with this is that it simply won’t bring in enough revenue. It’s easy to dodge with proper planning. You guys are frustrating to deal with because you think of tax policy as a means to engineer some ideal of social justice, and don’t seem to stop and think about what would maximize inflows to the treasury.
Take a look at this: http://online.wsj.com/mdc/public/page/2_3022-autosales.html
Yup. People are right back to buying their SUVs. I’m with HisRoc on this.
Well, apparently I’m on mute over at Bearing Drift because none of my comments to anything D.J. has written have been posted for some reason, so I’ll just repeat what I wrote over there over here.
D.J. wants to call all of these new taxes tax increases. Why? I have no idea. You can’t increase a tax that doesn’t exist. No one is going to argue that there are new taxes in this scheme, but there were always going to be because without them you’d see a massive revenue decrease to Richmond and that’s not the point of the ABC privatization plan. We’re not simply ending the Commonwealth’s liquor monopoly because we think it’s a bad policy. The entire point is to raise money to fund transportation. If the plan doesn’t raise at least as much as the state makes in revenue right now, there’s no point in doing it. That’s been the Democrat’s primary argument against the plan and it will continue to be.
So D.J. and the other “any revenue raising idea is a tax increase” types are playing directly into the hands of the Democrats – they oppose all these new ways to raise revenue and if they get dropped, the amount of money raised for transportation drops below what we would make under the status quo and we’ve made the Democrats’ argument for them.
There are no tax increases in this proposal. You can’t increase a tax that doesn’t exist. There are taxes in this proposal, but in the end the total dollar amount that Virginia businesses that deal in hard liquor will spend will go down, not up. They will make money on this deal and that’s why they’re all lining up in support of it.
The governor kind of made a mess of his credibility when he pulled the whole “we have a surplus on paper” stunt. now people are going to question his views on situations whether or not it is warranted. although i do agree that the anti-tax people who oppose anything that remotely resembles a tax increase are annoying. its not about getting rid of all taxes, its about only taxing what is necessary to tax. if the question is necessity I would invite anyone to nova during any rush hour.
Shame ‘ol DJ is pulling a “Blue Virginia” moment on you, Brian. I thought only Democrats did that.
Live by the sword (taxes v. fees), die by the sword or “hoisted on your own petard.”
Looks like we got whatever was going on over there resolved. I don’t know what it was – probably some kind of database thing. Their site was kind of wacky for a little while for me.
Brian: I’m not sure why you draw the distinction between creating a new tax and increasing an existing tax. That just seems like semantics to me.
My problem with the governor’s plan isn’t the philosophy — we should be out of the alcohol business if for no other reason than it’s hypocritical for the state to imprison people on drug charges while pushing the drug that does the most damage to our society. It’s also not the “new taxes”– as you’ve pointed out, the people who would have to pay them think they’ll get a better deal.
I have two real concerns. The first is political. I think as long as the governor’s plan foresees selling hard liqour in Wal-Marts and 7-11s, it’s a dead issue in the General Assembly. Why not just create private package stores?
The second is financial. A lot of business people I’ve talked to — including some who backed McDonnell financially — say the governor is greatly undervaluing the asset. Why would you sell a business with $600 million in annual gross sales for $500 million? I thought Republicans wanted government run like a business.
That’s a pretty shoddy business decision.
The real value of the state’s alcohol business, both wholesale and retail, is a lot closer to $2 billion than it is to $500 million.