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Warner
Comes out Swinging
The
governor's bold tax-reform proposal faces long odds
in a legislature dominated by the GOP. But, if
passed, it would fund his pro-education platform and
bolster his national profile.
Governor
Mark Warner’s sweeping, comprehensive proposal for
reform of Virginia’s
antiquated tax structure, unveiled last Monday in Richmond,
calls for an increase in the state sales tax by a
full penny, and would take
Virginia’s
lowest-in-the-nation cigarette tax from 2.5 cents to
25 cents per pack. Under
the proposal, local governments would be authorized
‘phase up’ the tax by as much as 50 cents per
pack.
Taken
together, the various components of the plan, a
combination of cuts and increases — and huge
shifts — would generate $1 billion in additional
revenue for the cash strapped state and cement a
heretofore elusive, pro-education legacy for Warner.
Even
with the new revenue, the governor said, the state
will have to grapple with deficits through the end
of the decade. He
placed the blame on ever-increasing Medicaid costs,
a growing prison population, an anticipated increase
of 100,000 kids in the state’s schools, escalating
costs of the car tax cut — and the cumulative
effect of some 50 tax breaks granted by the
legislature since 1995.
He is proposing no new programs.
But
coming on the heels of two regional sales tax
referendums that voters rejected by large margins
earlier this year, the proposals are seen by some
observers as a high-wire act without a net for a
governor who, until now, has been politically
risk averse.
The
plan anticipates an unprecedented restructuring of
the state’s tax system and a general shift in the
burden — largely to prosperous Northern Virginia
— while funneling an additional $680 million into
Virginia’s Standards of Quality over the next two
years.
The
so-called "death tax" on family farms,
closely held businesses, and estates up to $10
million in value would be eliminated, Warner said.
Chided
throughout the summer and fall by senior Republicans
for not showing his hand sooner, Warner left them
gasping — and fuming — in
Richmond.
If anything, he was bold. Not only did he offer a full phase-out of the
state’s hated car tax by 2008, which currently at
70 percent, but he also promised full elimination of
the state’s share of the sales tax on food.
Currently 4 cents per dollar, it would drop
to a local-government-share-only 2.5 cents.
And
he didn’t stop there.
In a nod to average working Virginians, seen
by many as the traditional Democratic base, Warner
proposed an increase in the personal exemption in
the state income tax from $800 to $1,000, an
increase in the 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.
Overall,
65 percent of Virginians would pay less taxes under
his proposals, the governor said.
Higher
earners in Virginia — the eight percent of filers
who make as much as $100,000 annually -- will face a
new tax bracket and pick up some of the difference,
paying 6.5 percent on earnings over $100,000.
The governor’s proposal would grandfather
age deductions for current beneficiaries who are 62
and older. Beginning
in January, 2005, though, the age deductions would
be deferred until age 65 and, in a move sure to
displease many high-income seniors, would decline on
a sliding scale as income goes up, beginning at
$50,000 annually for individuals, and $75,000 for
couples. The
governor said current age deductions, which apply
regardless of earnings or wealth, currently cost the
treasury $290 million a year.
And
corporations would pay more — at least more would
pay something. Warner
said he would close loopholes in the code that
allowed 21 of the top 50 largest to evade income
taxes altogether in 1999.
And,
mindful of the frailties of the state’s small
retailers, he promised to end the practice of
requiring accelerated filing of sales tax receipts.
Noticeably
absent from the package Warner said he will send to
the legislature was a move to tax services, a reach
widely anticipated during the summer.
Ditto any increase in the state gas tax,
despite recent signals of support from the Virginia
Chamber of Commerce and senior Republican lawmakers.
Speaker
of the House William Howell and Vince Callahan,
powerful chairman of the House Appropriations
Committee, both have said recently they might
support additional “user fees” on gasoline
sales. A clue
here: look for
this one to be at least one component of competing
reform packages that will surely be filed once the
legislature convenes.
Warner
did say he would earmark dedicated fees totaling
$350 million to the Transportation Trust Fund over
the next two years.
Warner
will spend the next few months trying to make the
case for his "fairer" tax system, for an
abiding commitment to public education, and for the
importance of fiscal integrity. Success is far from
certain, though indications are that he has done his
homework.
What
is certain is that the proposed reforms will face,
especially in the House of Delegates, excruciating
— perhaps even hostile — scrutiny by a tax
averse, Republican legislature when the General
Assembly convenes in January.
The
stakes could not be higher for Warner.
Given the long adds, success would mark him,
with two years left in his term, as one of the
savviest state chief executives in America and would
unquestionably give him national profile as a
Democrat. Failure
will relegate him to irrelevance.
Warner
knows the odds, the risks, and what’s in play. Administration insiders say the governor has
steeled himself and is ready for the fight of his
life on this one. It may have taken a few clangs of the bell, but he came
out swinging last week.
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December 1, 2003
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