NCPA - National Center for Policy Analysis

How Liberals View A Tax

January 15, 2001

Liberals generally see only the first-order effect of a policy, while conservatives see the secondary impact. Nowhere is this clearer than in the case of taxation. Liberals always assume economic behavior will be unchanged by any adjustment in tax rates. That is why, to them, tax rate cuts are nothing but giveaways and tax increases invariably will yield bountiful revenues.

An example of this is an annual tax Virginia levies on automobiles, amounting to hundreds or even thousands of dollars over the life of a car. Gov. Jim Gilmore was elected in 1997 on a pledge to end the tax. It has been reduced and will be 70 percent lower this year, with full elimination next year.

Not surprisingly, reducing the car tax led to a significant increase in car ownership in Virginia.

  • Between 1997, the last year the full tax was in place, and 1999, Virginia car registrations increased 3.8 percent, while rising just 2 percent nationwide.
  • In neighboring states, Maryland saw only a 1.4 percent increase in registrations, while North Carolina saw a decline of 1.6 percent.
  • Registrations also declined in other states with registration levels roughly equal to Virginia's, such as Indiana and Massachusetts.

Virginia drivers responded to the cut in the car tax by buying more cars. But liberals now complain that the revenue loss from the car tax phase-out has escalated because Virginians own more cars.

Sadly, this is the way tax bills are analyzed by liberals in Washington. A tax discourages economic activity, such as work or investment. The tax is cut, leading to increased economic activity. Liberals then assume that the previous rates of tax could have been collected at the higher level of activity. Thus they think lowering tax rates deprive the government of vast revenues.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 15, 2001.


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