COMMONWEALTH of VIRGINIA
Office of the Governor

James S. Gilmore, III
Governor

Mark A. Miner

Press Secretary

Testimony of Governor Jim Gilmore before the House Committee on Government Reform

Washington, D. C.

Wednesday, April 14, 1999

Thank you Chairman Burton and members of the committee for the opportunity to speak with you today.

We live during the most prosperous time in our nation's history. Working men and women are earning a higher wage. Our economy is booming nearly inflation-free. And our stock markets are climbing a ladder of seemingly endless ascent.

America's working men and women toiled long and hard to see this day. Through war, depression, and social unrest -- they bore the heaviest and harshest burdens during the toughest times of this century.

In its proper role, government provides essential services, but also a framework in which people can pursue their individual goals to make their version of the American dream a reality. But government also has become a great burden. While the "era of big government" may be over, big government itself remains with us.

The federal government now takes more than 20 percent of the nation's earnings - the highest proportion since the American people willingly sacrificed their paychecks and many, their lives to win World War II. In addition, taxes from all levels of government take 32 percent of the nation's income. Taxes now take away one-third of every American's capacity to define their own lives. Clearly, taxes in America are too high.

But I believe there is hope for the over-taxed in America. Record-breaking economic growth and historically high taxes have boosted revenues and created state government surpluses and will create federal government surpluses Elected leaders now have a

unique opportunity... and I believe an obligation... to reduce taxes while strengthening essential government services.

By the end of these hearings, you will have heard how four Republican governors have cut taxes at the state level. Many more Republican governors have made tax cuts a priority as well. Together we are sparking a new type of tax cut movement -- one for all Americans, not just an elite few, one providing significant relief while protecting vital government services, and one spurring economic growth both in traditional and Information Age industries.

While campaigning for governor in 1997, President Clinton came to Virginia to criticize my "No Car Tax" plan. The President said, "This really is a question about whether Virginians will be selfish in the moment or selfless for their children and their future."

"Selfish," I thought, “For working men and women to want to enjoy the fruits of their labors, rather than forfeiting them to the tax collector... selfish to think it unfair to annually tax a car - a necessity - so that you never really own it?" Virginians knew better they knew taxes were too high and the car tax was wrong.

Last April, I signed the Personal Property Tax Relief Act of 1998. It will phase out the tax on the first twenty thousand dollars of every personal vehicle's value by 2002. The car tax cut will annually return more than one billion dollars to Virginia's working men and women - the largest tax cut in Virginia's history.

We also are eliminating the state's share of the sales tax on food. The food tax takes more from working families of modest means when the government should take less. The bigger the family, the greater the struggle to make ends meet, the more the food tax takes

The legislature recently passed and I signed my plan to eliminate the state's share of the food tax. When fully implemented, the food tax cut annually will return another 270 million dollars to Virginia's working men and women.

Many of Virginia's working men and women serve in the armed forces. Their commitment to protect America and American interests often requires them to spend lengthy amounts of time abroad, away from their homes and families. We are proud, in Virginia, of our brave military men and women, especially those who are fighting on the front lines in Kosovo. We are eliminating the tax on the first 15,000 dollars of military pay so they can keep Virginia as their home.

Tax relief empowers working men and women with financial freedom. It also creates incentives for businesses to grow, invest, and create more and better jobs for those families. In Virginia, we're expanding the number of enterprise zones and cutting industry-specific taxes to make our business environment more competitive. We especially want to strengthen our burgeoning technology industries.

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Northern Virginia is home to the greatest concentration of Internet companies and users in the nation. And global Internet giants, such as America Online, PSINet,

MCIWorldCom/UUNet, Network Solutions, and many others are headquartered in Virginia. I recently signed legislation to cut the sales tax on equipment used to provide Internet access. This Internet tax cut coupled with our comprehensive Internet Policy Act will strengthen Virginia's leadership role as the Internet Capital of the World.

I have mentioned only a few of the tax cuts we have enacted during the first five hundred days of my administration. When all sixteen tax cuts are fully implemented, one and a half billion dollars will annually be returned to Virginia's working men and women.

Have we sacrificed our duty to be responsible stewards of the public good? Of course not. We're increasing our support for colleges and universities while making them more affordable by cutting tuition 20 percent. We're implementing our nationally acclaimed Standards of Learning to lift student achievement in Kindergarten through the 12th grade. We're strengthening our transportation infrastructure throughout the state. And we have cut violent crime to the lowest level this decade.

What my administration is doing in Virginia and other Republican governors are doing in their states, the federal government can do in Washington. The federal government can both cut taxes and strengthen vital government services like social security and national defense. The Republican budget does exactly that.

But sustained tax relief and responsible public stewardship require discipline. Government must make tough spending choices just as working men and women do everyday. Government must weigh every dollar it taxes against the needs of those who earned those dollars -- the need of a single working mother to pay for day care so she can earn a living, the need of the wage worker without a pension plan to save for retirement, the need of the Internet entrepreneur to save for seed money for a startup.

We can meet the obligations of a secure and humane society while still empowering people to build better and more independent lives. I urge the Congress to follow the lead of Republican governors and pass a budget that balances the need for significant tax relief with the priorities of responsible public stewardship.

Mr. Chairman, I now would be pleased to answer any questions.

Mr. BURTON. Thank you, Governor.

You know, we often hear about tax cuts being for the rich or selfish, as you noted in your testimony. Could you explain in your administration how cutting taxes helps the working poor and the middle class as well?

Governor GILMORE. Sure. Let me start with a little story. About 2 weeks ago I guess it was about 2 weeks ago I was at a very nice dinner party in Georgetown. It was a lovely place, I must say, and lovely people, and I thoroughly enjoyed myself. But while I am at a place like that, I also from time to time like to step out just very quietly and speak to some of the people who are serving that night or catering or cooking, or whatever they are doing, because, you know, I just want to speak to them. So I did.

I just very quietly went off to the side, and I spoke to one of the waiters. And I just said, "Listen, you all are doing a wonderful job tonight. Everything is very beautiful. And I just want to congratulate you and thank you.'

And then I got ready to move on back to the dinner party, and the guy says to me, "Governor, I live in Alexandria, right across the river, and I sure do appreciate you cutting that car tax."

And the truth of the matter is that I hear that all the time. I come to Washington from time to time, and I have an opportunity to be in the Capital and I have a chance to speak to Congressmen and women, and from time to time I talk to them about the tax cuts, but really the focus of attention is by the staffers. As I am escorted into the Congressman's or the Senator's offices, it is the staffers who say, "He'll see you now, and by the way, thanks for cutting the car tax."

The truth is that-there is laughing because they know I speak the truth-the truth is that, for the well-to-do, the elimination of a tax like that on people's automobiles is a symbolic, important principle that says that government will not take it all, but for people in modest circumstances it is materially important as to whether or not they are able to get a tax refund.

I had one elderly couple-actually, the daughter of an elderly couple come to me and say to me that, when their parents got back $120 on this car tax cut, it made a difference on the quality of medicine that her parents were able to buy that month. So it does make a significant difference.

In fact, I think tax relief is primarily a help to the modest and middle class and those of modest means, because they are the ones that are trying to climb the ladder of success. The people up there already have it, but the people who are trying to get some place need to have as much of their own capital as they can-to buy a better education for their kids, for their students; to do startup, and to be able to have some resources. Our experience is that tax cuts matter most to the people in the middle class and those people who are in need.

Mr. BURTON. Let me ask you, your overall economy, has it benefited from the tax cuts, in your opinion, and if so, how has it benefited?

Governor GILMORE. Well, first, let me speak to you about the Virginia economy. We are a rocketing economy, I must say. We think, think, traditionally, would hope to see an economy in a State or

in the United States, or in even some countries, where they are mature or growing economies, an increase of revenues in 3 or 4 percent, perhaps 5 or 6 in a strong economy. Virginia's revenues are growing at nearly 11 percent.

Mr. BURTON. Eleven percent?

Governor GILMORE. Almost 11, about 10.5, in, again, our growth of revenues.

Mr. BURTON. And, finally, based upon your experience in Virginia, do you think that tax cuts at the Federal level would stimulate economic growth and more revenues coming to the Treasury?

Governor GILMORE. Yes, we believe it would stimulate-we believe it will stimulate the economy of Virginia, as people expend the cash in order to increase the quality of their lives, and we are convinced that it would stimulate the economy at the Federal level as well.

But, you know, Mr. Chairman, the heart of this is, less that, we believe that if we produce jobs and we have a pro-growth economy in Virginia, and we produce jobs as we are, and they are good-paying jobs, that the revenues are going to be coming in. And then you have to make a separate question altogether, and this is, what is right and just and humane for the individual citizens? And that means that we are doing it to materially help people, and that a portion of these kinds of revenues ought to be returned or never taken in the first place.

I cannot resist making an analogy. You know, we are doing everything we can do at the State level, and the other States are as well. And I think that we are succeeding, and we are doing very, very well. But the money is here. The Federal Government has the money. And this is where you can really help people, if you can reduce the Federal taxes.

I was stunned the other day to see that the last time that we had this level of taxation in the United States was in the height of the Second World War, when people were willing to make sacrifices out of a sense of survival. In a battle with the Japanese and the Germans, the people of the United States were prepared to surrender over 20 percent of their income to the Federal Government. Not only are we not in a life-threatening war right now, although we are in two wars, but we are not in a life-threatening war, the cold war is even over. And, yet, we are at this point once again over 20 percent.

Now let me just mention something. We have two funds in Virginia, an earmarked fund called the non-general fund and then the general fund, which is a discretionary pot of money that we use for all the programs through the legislation. When we implement all of this, we will be cutting taxes in Virginia about 10 percent of the general fund.

I asked a little while ago, if the Federal Government were to follow Virginia's lead and cut revenues 10 percent, how much would it be? I don't think I know. How much would it be if we were to cut the Federal Government 10 percent, as we are doing quite successfully in Virginia? How much would it be? I think the counsel thought, or someone thought, that it might be $1.6 trillion. It is an enormous amount of money. If we can do it in Virginia, the Federal Government can certainly do it.