Well, now that the embarrassing correction is out of the way, I can get to the original point: explaining to Brian Schoeneman et al why they are wrong, and that McDonnell’s plan really does involve tax increases.
As an aside, and just to make sure everyone is reminded: I support ABC privatization; the government should not be in the liquor business. I have expressed my opposition to these tax increases because I genuinely believe (1) they will hurt the economy, (2) they’re unnecessary, and (3) they’ll make this harder to come to fruition.
With that in mind, let’s begin.
- The loss of ABC store profits can not be called a tax cut: This is probably the largest source of confusion. The Administration is hoping everyone sees the ABC price markup as a tax. It’s not. A markup is what any retailer does to the price they pay a wholesaler (if applicable). While ostensibly it’s supposed to cover retail specific costs and ensure a tidy sum for the owner, the markup can be as high as the market allows. Therefore, the notion of a “marup tax” in this context is inaccurate. The ABC stores are simply setting a profit maximizing price (as they see it). As this revenue is not a tax, its loss by getting the state out of the liquor business is not a tax cut; nor can it be used as reserve against tax increases to claim an overall tax cut or tax shift.
- The 2.5% “optional convenience fee”: The more I think about this, the worse it looks. I will freely concede that 2.5% is better than the 5% retail tax that restaurants and others would have to pay if they rejected the “option” and stuck with buying their booze via retail. However, that does not mean this new tax is suddenly not a tax. A fee is a charge the government provides for a service. In this case, since the government is no longer the wholesaler, it is not providing a service at all here. Rather, it is slapping a levy on anyone who takes the wholesale “option.” That is a new tax. The plan would create a new, less expensive way for restaurants and hotels to get booze, but it would then impose a new tax on that method. Sure, 2.5% is better than 5%, but it should be zero.
- The wholesale license charge: Brian’s comment about this one (“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”) misses the point. A fee is a simple amount designed to recoup the cost of issuing the particular license. Something that applies a percentage of all receipts is hardly of that category, unless a license for a $1M/year wholesaler costs $5,000 more to process than for a $500K/year wholesaler. Thus, this isn’t a fee, it’s a tax.
All told, the two tax increases combine for a mere $26.5 million in annual revenue. That’s less than 0.1% of the annual budget. In fact, there is enough in the undesignated surplus to cover this gap for two years. Surely, the downside to dropping these taxes and presenting a clean privatization bill is nominal at most.
By contrast, keeping the tax increases could do tremendous economic and (especially) political damage. Raising any taxes in a potential double-dip recession is unwise (and for those who refuse to consider them tax increases, think of what a $26.5M tax cut could do). On the political side, the tax increase gives the Democrats perfect cover to oppose this. I know Brian thinks this irrelevant, but since the Democrats do control the State Senate, they can kill this if they want. If they killed a clean bill, McDonnell and the GOP could remind the voters (including the Tea Party crew) that the Democrats were willing to throw away nearly half a billion in road funds because they’re addicted to taxes. That would make flipping the Senate much easier next year – and that knowledge could convince some vulnerable Dems not to get in the way.
Instead, we’re giving Dick Saslaw and Don McEachin the chance to wrap their caucus in taxpayer-friendly language, which will embolden them to knock this down, make it harder to defeat them in 2011, and potentially sour the Tea-brewers for quite some time.
I’d rather avoid all of that; and I’d hate to think the McDonnell Administration is willing to risk it for a mere $26.5 million.