Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, January 23, 1992 TAG: 9201240594
SECTION: EDITORIAL PAGE: A9 EDITION: METRO
SOURCE: RAY L. GARLAND
DATELINE: LENGTH: Long
THE GENERAL ASSEMBLY FACES A TAXING SESSION
THAT UNKNOWN soldier of Virginia politics, Lt. Gov. Don "Skippy" Beyer, and a host of others have gotten into the business of proposing remedies for Virginia's anemic economy and faltering tax receipts. By the way, Beyer's nickname isn't Skippy; it's just that his manic grinning suggests that it ought to be.Beyer heads an outfit called the Economic Recovery Commission that has just proposed a new state tax exemption for a portion of income earned from interest on savings, and a reinvestment tax credit for corporations, that might cost the state $30 million in this budget. He dropped earlier suggestions of a cut in the state capital-gains tax and a $1 billion bond issue for construction projects.
Gov. Douglas Wilder, who is modifying his proposals faster than a lovelorn lad, now says he will favor a $600 million bond issue, instead of the $200 million he floated earlier.
House Majority Leader C. Richard Cranwell of Roanoke County has put in bills to extend the state's 4.5 percent sales tax to sales at state liquor stores, to raise $17 million. He would also delay repeal of the sales tax on non-prescription drugs, now set for July 1, to pick up $30 million. And Cranwell would also remove the sales-tax exemption on the printing of newspaper advertising supplements.
Eliminating the ad-supplement exemption would raise an estimated $29 million in 1992-94 - which would have to come from the profits of newspapers or be passed on to advertisers and subscribers. With ad revenues and newspaper profits generally down, and afternoon papers folding, this blow could hardly come at a worse time.
Writing for newspapers, certainly I have an interest in their survival. But in plain truth a sales tax on any aspect of the production of a finished product is wrong unless universally applied, and that would lead us to the promised land of the tax-and-spend crowd: the value-added tax. A VAT is a tax applied at every stage that you add "value" to a product. It is insidious because it is hidden from consumers and driven relentlessly higher by inflation without politicians' having to take the heat for raising taxes on individuals.
One of the hardest-working and most useful legislators, Del. Lewis Parker, D-Mecklenburg, has weighed in with an idea that has a germ of good sense in it. Parker would raise the top bracket on the state income tax from 5.75 percent to 6.25 percent, and use the money gained to increase the personal exemption from $800 to $1,100 and reduce the sales tax on food purchased for home consumption from 4.5 percent to 3.5 percent.
Since the present maximum income-tax rate of 5.75 percent starts at just $17,000 after all exemptions and deductions, it means that the vast majority of Virginia taxpayers would pay a bit more - but the larger personal exemption and small decrease in the food tax would more than offset that increase.
More than half the money the state collects from the personal income tax is paid by those who itemize their deductions. State and local income taxes - unlike the sales tax - are deductible on the federal return, which means that a substantial portion of any increase would be offset by a reduction in federal taxes due. This "savings" can go as high as 31 percent for those in the top federal bracket.
The grave flaw in Parker's proposal is that a small reduction in the sales tax on food hardly constitutes major tax relief for the working poor, while making a tax already difficult to administer even more difficult.
Picture this: A customer comes to the checkout at the corner convenience store with a box of soap powder, a can of beans and orders a hot dog. The hot dog would be subject to the regular sales tax plus the local prepared-foods tax where applicable. The soap powder would be taxed at 4.5 percent while the beans as food for home consumption would be taxed at 3.5 percent!
While large stores with scanners may be able to handle these variations, there ought to be a limit to the burden the state imposes on merchants in collecting its taxes.
Since there's no sales tax on items purchased with food stamps, which adds another complicating factor, the goal ought to be to get rid of the sales tax entirely on food purchased for home consumption. But that's a big ticket, maybe $500 million a year, and doing so would also impact the budgets of the state highway department and every local government.
In its present form, Parker's bill shouldn't pass. But it wouldn't take much imagination to create a package that would eliminate the sales tax on food. The overall result could easily be a fairer distribution of the tax burden without having recourse to such gimmicks as the governor's health-providers' tax or Cranwell's assault upon newspapers.
In all the hysteria accompanying the proposed state budget for 1992-94, however, it's important to know just how fast we've increased state spending despite the recession of the past two years. When Gov. John Dalton left office in January 1982, he proposed a budget of $12 billion for 1982-84. Only 10 years later, Wilder is proposing $28 billion. That's an increase of 125 percent in a single decade.
While it's hard to justify additional state taxes until we've had a thorough assessment of all operations of state government by competent outside management consultants, it isn't hard to justify action now to provide a fairer distribution of the tax burden and perhaps a bit more money for hard-pressed cities and counties. Ah, but getting it; there's the rub.
\ AUTHOR Ray L. Garland is a Roanoke Times & World-News columnist.