Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, December 22, 1994 TAG: 9412230052
SECTION: EDITORIAL PAGE: A13 EDITION: METRO
SOURCE: RAY L. GARLAND
DATELINE: LENGTH: Long
In the past 20 years, America has seen the rolling recession: first heavy industry; then agriculture, followed by sectors of transportation, high tech and retailing. That is now touching the hitherto untouchable, medicine and even government itself. Do more with less has become the watchword, and many formerly sick companies have been restored to health.
It was inevitable that government's turn would come. For one thing, in the absence of foreign menace, Americans would not easily surrender more than half their income to government, and that was already happening to affluent taxpayers in high-tax locales. Unfortunately, there weren't enough of them to go around.
The political right, always more influential than its numbers, understood clearly the ultimate destination of all welfare-state democracies, which is to indulge confiscatory taxation and assaults on private property in the name of "fairness." Liberalism, for all its crowd-pleasing rhetoric, lost credibility by too often failing to deliver the goods shown in its shop window.
In essence, you could not have a lean private sector and a fat public sector. The tide of history, which ran with liberalism for more than 50 years, now runs with its opponents.
One of those opponents is George Allen, the first Virginia governor in three decades genuinely prepared to cut taxes and halt the expansion of state government. In presenting a remarkably changed interim budget, Allen told legislators he had been guided by two questions. First: "Is this activity, no matter how well-intentioned or entrenched, essential for state government and taxpayers to provide?" Second: "Is this activity more important than a tax cut for all of Virginia's working families - or other priorities voters demand?" If the answer to both questions was "no," the governor concluded "the money should be kept by its rightful owners - the taxpayers of Virginia."
Beginning Jan. 1, 1995, Allen would raise personal exemptions on the state income tax in five annual installments from $800 now to $2,400. When fully implemented, he says the "average" married couple with two children will see their state income tax cut in half, and 84,000 Virginians will be taken off the income-tax roll entirely. Allen projects a loss to the treasury, or a gain to taxpayer's pockets, of more than $1.3 billion over the next five years.
The governor also attacked the business and professional license tax levied by counties, cities and towns on the gross receipts from sales and services. Allen would force localities to reduce this tax to zero over five years, replacing their lost revenue with state grants worth $750 million over the next five years.
There are problems with the business and professional license tax. As the governor pointed out, it is extracted even if the operator is losing money or struggling for survival. It is also a tax difficult to administer fairly. To some extent, collections must be based on the honor system. And rates vary all over the state, with numerous localities imposing none at all.
In 1991, the highest license tax for retailers was found in the city of Richmond, where a merchant would pay $3,750 on each $1 million in sales. Professional license taxes typically run $5,000 for each $1 million in services billed.
The chief argument in favor of license taxes is that revenues expand with the economy while allowing localities to retain a tiny slice of the profits flowing out of their communities to such giant corporations as Wal-Mart and Sears. Local officials also worry that the state won't continue to make up their lost revenue after Allen leaves office.
But the governor makes his intent perfectly plain: "One of the great virtues of tax cuts is ... they force us to run government more efficiently ... to better define our priorities." In other words, the dance cannot long continue after the band stops playing.
In sketching out the state's fiscal blueprint for the next five years, Allen proposes to do a number of remarkable things in addition to those new tax cuts. He would accommodate $340 million in payments to settle the case with federal retirees, and a similar sum for those special tax breaks given all senior citizens at the same time. He would increase prison operating costs from $417 million in the current year to $730 million in 2000. He would start prefunding future cost-of-living adjustments for members of the Virginia Retirement System. And all this within the context of the smallest percentage increase in general-fund spending the state has known in the modern era!
Clearly, something has to give. Allen is proposing cuts of 2 to 6 percent for many agencies (more in some cases) in the budget already approved for the fiscal year beginning next July 1. One result will be a net reduction of nearly 1,100 state jobs - another down payment on the governor's goal of eliminating 16,000 positions by the year 2000. But that would leave the state with about 90,000 workers, or 200 percent more than 30 years ago.
No doubt, this is a radical program. But bear in mind, all the tax breaks already enacted or now on the table will represent less than 5 percent of total state revenues over the next five years, which will still grow by at least 20 percent.
You can certainly challenge the wisdom of those special tax breaks for those 65 and over that some Democratic leaders insisted upon at the special "retirees' session" of the assembly last June. By focusing on the personal exemption, Allen is putting the biggest part of his tax-cut money where it is most deserved and will do the most good.
Ray L. Garland is a Roanoke Times & World-News columnist.
by CNB