Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, December 4, 1994 TAG: 9412050065
SECTION: VIRGINIA PAGE: B6 EDITION: METRO
SOURCE: ASSOCIATED PRESS
DATELINE: RICHMOND LENGTH: Medium
``Virginia must not remain in the high-tax states when it comes to taxing incomes,'' the Republican said as he unveiled his proposal for a $2.1 billion individual income and business tax cut over five years.
State Sen. Hunter Andrews and Del. Richard Cranwell, chairmen of the General Assembly's tax-writing committees, had a different perspective as they questioned whether Virginia can afford the cut.
``We are already a low-tax state,'' said Andrews, D-Hampton.
``Virginia is not a high-tax state,'' echoed Cranwell, D-Roanoke County.
Who's right? It depends on how you measure the state's tax burden, according to economic studies.
Citing research by the District of Columbia government, Allen said Virginia's income tax burden places it in the top third of states and its personal exemption is the second lowest in the nation.
Andrews and Cranwell referred to studies that show Virginia's total tax burden is among the lowest in the nation.
The state ranks 36th of the 50 states in taxes collected per person, according to the National Conference of State Legislatures. It ranks 13th in income taxes, but the state's overall tax burden is low because its 4.5 percent sales tax is the lowest among the 45 states that charge the tax.
``Virginia overall is a relatively low tax state ... but if you look at the personal income tax, Virginia is relatively high,'' said John Bowman, chairman of the economics department at Virginia Commonwealth University.
Allen wants to triple the exemption allowed for each person, dependent, the aged and the blind from $800 to $2,400 by the year 2000. He said the cut would primarily help lower- and middle-income families with children.
Increasing the exemption is ``probably the most logical place to make the cut,'' Bowman said.
However, he disputed Allen's contention that the cut would increase consumer spending and boost the state economy.
``I think any effect would be rather small,'' Bowman said. Taxpayers may use the extra cash to take out-of-state vacations or buy products made elsewhere, so the money would not go into local coffers, he said.
``You're going to have either lower services or higher taxes elsewhere or some combination of the two,'' he predicted.
Allen's plan would reduce state revenues more than it would help taxpayers who itemize their federal tax deductions, said Gene Seago, a Virginia Tech accounting professor.
For people who pay federal income taxes at the 28 percent level, a $200 state income tax cut would raise their federal taxes by $56. So, they would get only a $144 tax break, while the state would lose $200.
Allen is following the lead of New Jersey Gov. Christine Whitman in proposing a major tax cut. Taxpayers there have gotten a 15 percent state income tax cut, but local property tax increases are wiping out the savings in many communities.
Lobbyists for local governments say the same fate could befall Virginia taxpayers, particularly since Allen's proposal also eliminates a business gross receipts tax that most localities charge.
``Localities are going to have to scramble,'' said James D. Campbell, executive director of the Virginia Association of Counties.
``Local governments have been doing more with less for the past four to five years because we have seen continuous cutbacks from state and federal government funding,'' he said.
by CNB