McDonnell Risks Tarnishing His Legacy
His opposition to Medicaid expansion is threatened by a tax fiasco.

Virginia governor Bob McDonnell


John Fund

Some Republican governors — all of them elected with strong tea-party support — have moved left since the November election by agreeing to participate in Obamacare’s expansion of Medicaid. The lure of “free money” from Washington has proven too much for governors Jan Brewer of Arizona, Rick Scott of Florida, and John Kasich of Ohio to resist. Obamacare promises to pay 100 percent of the cost of new Medicaid patients, lowering that to 90 percent in later years. Never mind that Uncle Sugar has a notorious reputation for reneging on promises and that history shows that expanding Medicaid only increases insurance premiums, because absurdly low Medicaid payments force hospitals to cost-shift and raise rates on the privately insured.

One GOP governor who has held firm against Medicaid expansion is Virginia’s Bob McDonnell. Less than an hour after Governor Scott’s cave-in was announced on Wednesday, McDonnell tweeted to make clear he opposed any expansion absent sweeping structural reform of Medicaid. “Reform is far more than simply receiving a waiver from the federal government,” he wrote state legislators after the state senate passed a budget that enables the Medicaid expansion to move forward. Sadly, last month, 16 of the 20 Republicans in the Virginia state senate voted for the budget.

The legislators may be capitulating on Medicaid in order to marshal their resources for the real budget fight, which is over a massive state tax increase to pay for expanding transportation budgets.

McDonnell, who is limited by state law to one term in office, wants to build a legacy in his remaining year as governor. In that light, he last month proposed a $2.4 billion tax increase over five years that would end the state’s 17.5-cents-per-gallon gas tax and replace it with a sales-tax increase and a tax on gasoline at the wholesale level.

Virginia does have some of the nation’s most congested highways, and its gas tax — which isn’t indexed for inflation — hasn’t been raised since 1986. Because of increased fuel efficiency and the growth of hybrid and alternative-fuel vehicles, the gas tax has become a “stagnant revenue source,” McDonnell says. His solution is to shift much of the costs of transportation infrastructure from drivers to shoppers.

Spenders from both parties, however, exploit any proposed tax increase as an opportunity to grow government. McDonnell’s original proposal has become a garish Christmas tree of legislative add-ons. The tax increase has grown by 250 percent, becoming a $6.1 billion behemoth. The gas tax won’t really go away, but will be replaced with a 3.5 percent wholesale tax. If Congress doesn’t approve a law allowing states to collect sales tax from out-of-state Internet retailers, the tax will rise to 5.1 percent in 2015. If the price of gasoline doesn’t rise a penny, the new tax will bring in the same amount of revenue. Meanwhile, sales taxes will jump to 5.3 percent, up from 5 percent, and new regional taxing authorities in Hampton Roads and Northern Virginia could see sales taxes in those regions increase to 6 percent. A host of other tax hikes have been grafted onto the bill. The tax on motor-vehicle sales will go up by a third, a new tax on home sales will be imposed, and there will be a $100 annual fee for drivers of alternative-fuel cars.