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A
recent editorial page cartoon in the Daily
News-Record showed Gov Mark R. Warner
presenting his wish for “More state spending!”
to a weary Santa Claus.
The usually perceptive and clever J.R. Rose
misfired. And
unfortunately, his pen-and-ink slant may impact more
people than my override in words.
But I need to try to set the record straight.
First,
and foremost, Warner’s tax proposal does not allow
for any new government programs.
What it does do is maintain the status quo on
the most basic core services, in other words,
provide a tax structure that is better equipped to
pay for what the state is already doing.
It should also reduce the taxes paid by many
low and moderate-income citizens.
And it would ensure that corporations pay
their fair share of taxes — close the loopholes
that allowed 21 of the 50 largest companies to evade
income taxes completely in 1999.
Corporations that are located in Virginia
ought to pay taxes in Virginia,
no longer be able to register out of state to avoid
doing so.
Governing
is easy when times are good but more essential when
times are challenging.
A record $6 billion in revenue shortfalls has
challenged Warner since he took office in early
2002. For two
years he tried to slash his way out of the
structural deficit through cuts in budget and
personnel — reducing the state workforce by 5,000
and eliminating 50 government agencies plus
instituting broad reforms for more efficient state
government. The
shortfall seriously jeopardized the Commonwealth’s
hard-won reputation for fiscal responsibility.
Moody’s Investors Service placed the state
on credit watch — a red flag alert to the danger
of losing
Virginia
’s
cherished triple-A bond rating.
That AAA benchmark is important because it
allows states to borrow money at lower interest
rates.
No
one in the governor’s office had a solution —
easy or otherwise. Yet
with his consistently popular rating among voters,
Warner could have ridden out his term proclaiming
the problem unsolvable and passing it on to the next
governor. Instead
he chose to fight for fiscal integrity, to meet the
challenge of leadership.
The
majority of us measure the “rightness” of
taxation by what we ourselves pay.
Too often we lose sight that the purpose of
taxation is to provide government support for the
general welfare — to sustain services in health,
transportation, education, parks and recreation,
other essential areas.
No one denies that
Virginia’s
tax structure is antiquated and inequitable.
Today complaints come because Warner’s plan
outlines an unprecedented restructuring of the
state’s tax system and a shift in the tax burden
— largely to prosperous
Northern
Virginia
.
He suggests that the current shortfall has
been fueled not only by the escalating costs of the
car tax cut and the cumulative effect of some 50 tax
breaks legislated since 1995 — repeal of the car
tax alone now costs the state almost $1 billion
annually — but also by increasing Medicaid costs,
a growing prison population, and an anticipated
100,000 more children in the state’s schools.
Under
his proposal, higher income Virginians, the 8
percent making over $100,000 annually, would face a
new tax bracket. They
would pay 6.5 percent on earnings of more than
$100,000. Under
the present system, anyone making more than $17,000,
whether $17,001 or $170,000 is taxed at the same
rate of 5.75 percent.
In addition, under Warner’s plan, age
deductions would decline as income rose, beginning
at $50,000 annually for individuals and $75,000 for
couples. The
governor pointed out that current age deductions,
which apply regardless of earnings or wealth, now
cost the treasury $290 million each year.
A shift to “means testing,” as that’s
called, makes sense and may make even more sense a
few years from now when the baby boom generation
starts to retire.
In
a nutshell, Warner has three goals: to make taxation
fair, to meet a basic commitment to education, and
to preserve the state’s fiscal integrity.
Part of his fairness is elimination of the
state share of the sales tax on food.
Currently at four cents per dollar, it would
drop to a local-government share of only 2.5 cents.
The sales tax on food is one of the most
inequitable burdens society imposes.
Also seeking fair play on income tax,
personal exemption would increase from $800 to
$1,000, standard deduction from $3,000 to $4,000,
and complete elimination of the tax for individuals
earning less than $7,000 annually, or for couples
earning less than $14,000.
In addition, the marriage penalty would be
eliminated. Warner
estimates that 65 percent of Virginians would pay
less in taxes under the new structure.
Warner’s
tax plan also would establish conformity to the
Military Family Tax Relief Act.
For example, people who serve in the National
Guard can deduct up to $1,500 in expenses for
overnight travel for duty and a capital gain
exclusion for military personnel who sell a home
owned less than two years.
A benefit for businesses raises the deduction
allowance from $25,000 up to $100,000 in equipment
or similar purchases each year.
Both these changes conform to federal laws.
The
governor faces a battle in the Republican dominated
General Assembly. Yet
his tax reform plan was issued one day before a
Republican tax study commission ended a year-long
study with no recommendations for restructuring the
state’s archaic tax system.
Few governors have tried to raise taxes in
the immediate past decades.
However, Gov. Mills Godwin (D. 1966-70, R.
1974-78) inaugurated the four percent sales tax to
balance the budget and establish the community
college system. Gov.
Gerald Baliles added half a percent in the sales tax
in 1986 to meet transportation needs.
The key to acceptance rests with the public
perception of need. Education
is a driving issue today.
Warner’s plan funnels $680 million into Virginia’s
schools. At
the same time, he would eliminate the “death
tax” on family farms, closely held businesses and
estates up to $10 million in value.
The
governor’s plan provokes controversy and will
engender alternate solutions.
Del. Allen Louderback, R-Luray, has filed one
plan and Sen. Emmett Hanger R-Mount Solon,
another. The
plans all deserve careful study and an open mind.
Yet as one who majored in economics and
headed a major university, who had to meet budgets
for 28 years and create growth, I’m convinced by
the soundness of Warner’s proposal.
The greatest loss for Virginians will be if a
new tax structure — sorely needed — is not
assessed on merits instead of party lines.
--
January 19, 2003
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