DATE: Sunday, September 28, 1997            TAG: 9709260034

SECTION: COMMENTARY              PAGE: J4   EDITION: FINAL 

TYPE: Editorial 

                                            LENGTH:   75 lines

VIRGINIA TAXES HOW GREAT A BURDEN?

James S. Gilmore III, the Republican candidate for governor, says that Virginia is a high-tax state. He cites numbers from the Tax Foundation, a conservative think tank, showing that Virginia has the 16th highest state and local tax burden per capita in the nation.

Listen to Donald S. Beyer Jr., the Democratic candidate for governor, and you'll get a different view.

According to Beyer, Virginia is a relatively low-tax state. Information supplied recently to legislators studying state taxes supports his claim. Those numbers, based on U.S. Commerce Department data, say that Virginians pay a lower percentage of their income in state and local taxes than residents of all but four other states.

Who's right? Who's wrong? And why does it matter?

It matters because both Gilmore and Beyer are talking about allocating a major portion of revenue growth over the next four years to a tax cut. Gilmore's cuts would be substantially higher than Beyer's.

If Virginians are paying a disproportionate share of their money in taxes, then it makes sense to talk about relief. If they're paying less than most other Americans, then it makes greater sense to ask whether services - schools, roads, mental health services and so forth - are suffering.

As the conflicting data make clear, the high-tax/low-tax question can be argued either way. But it is safe to say that the ``high-tax'' view is in the minority among government analysts, economists and others who have studied Virginia's tax structure.

Two factors account for the difference in Virginia's 16th-place finish cited by Gilmore and the 46th-place ranking included in the legislative tax study data.

First, Gilmore is highlighting taxes paid ``per capita.'' The alternate numbers measure taxes as a percentage of personal income. Many analysts say the second approach is fairer. Here's why.

If the average resident of West Virginia pays $500 in taxes and the average Virginian pays $600 in taxes, then Virginia looks to be the high-tax state.

But if the same resident of West Virginia has $10,000 in income and the resident of Virginia has $20,000 in income that year, then the West Virginian is paying a much higher proportion of earnings in taxes.

Second, the 46th-place ranking is based on state and local tax collections, as reported to the federal government. The Tax Foundation figures are derived from a computer model that attempts to answer a complicated question. Are residents of one state actually paying taxes that are being collected in another?

While that is a valid question, dozens of judgment calls must be made in answering it. Analysts can disagree vehemently on proper methodology, and different techniques can produce different results.

For instance, the Institute on Taxation and Economic Policy, a more liberal group, has a computer model that analyzes taxes paid by various income groups within each state. By their count, the Virginia tax burden is below average in every income sector.

Several other groups, using a variety of techniques, have over time put Virginia in the moderate-to-low tax category. The Tax Foundation stands virtually alone in ranking Virginia above average.

Even their assessment deserves a second look. Gilmore has picked only those numbers from the Tax Foundation data that support his high-tax view. When the foundation computed taxes as a percentage of income, the preferred method, Virginia wound up in a three-way tie for 26th place.

The most straightforward way of measuring tax burden - looking at actual tax collections and figuring them as a percentage of income - is not problem-free. But the opinion of Elizabeth Davis, senior policy analyst for the Center for the Study of the States in Albany, N.Y., seems generally shared.

``It's a pretty good `back-of-the-envelop' measure of high or low taxes,'' she said.

In other words, it probably puts you in the ballpark. That's the measure by which Virginia ranks 46th nationally in tax burden.

There may be legitimate reasons for giving Virginians a major tax break over the next four years. But the argument that Virginia is a high-tax state is not one of them.

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