ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, August 1, 1996 TAG: 9608010032
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
COLUMN: Ray L. Garland
SOURCE: RAY L. GARLAND
GOV. GEORGE Allen kindly named me to his Commission on Competitive and Equitable Tax Policy, chaired by Del. Alan Diamonstein, D-Newport News, and Sen. Walter Stosch, R-Henrico. When establishing the commission by executive order, Allen stated his own view: "I remain committed to lowering the tax burden for Virginia's working families." In part, this study is a product of the assembly's rejection of the governor's proposed tax cuts in 1995.
While the commission will make an interim report to the last regular session of the legislature over which Allen will preside as governor, the main body of its work will be the business of the next governor, who may or may not share Allen's vision.
The late Sen. Ed Willey used to say if you're against making a study you're in favor of ignorance. But there must also be a reasonable prospect of a study bearing fruit to justify the time and expense. Too often in the past that hasn't been the case, and may not be here. Changing tax policy will require broad public support. But the most recent state election might be interpreted as supporting the status quo on taxes. That is, neither raising them nor cutting them.
Virginia Tech's Center for Survey Research recently polled 1,168 Virginians and found general satisfaction with existing levels of spending for a variety of government services. The main exception was public education. Only 5 percent of those polled believed we were spending too much on public schools, while 54 percent thought we weren't spending enough. With expenditures averaging about $7,500 a student for a school year of 180 days, it's hard to know what would satisfy them. Of course, most of those polled likely had no idea what we're spending, and a proper question would have stated the amount before asking whether it was too little or too much.
The magic of state taxation is that most citizens have no idea what they're paying, or even when they're paying it. The individual income tax, with its maximum rate of 5.75 percent, raises more than $4 billion a year, or 55 percent of all state general-fund revenues. But most of this is collected by employers' withholding from wages. The greatest work of modern liberalism was turning employers into tax collectors and causing workers to focus on take-home pay rather than gross income.
Then, there's the 4.5 percent sales tax collected by merchants and the motor-fuel tax of 17.5 cents a gallon obligingly collected by service stations. In all 41 Virginia cities, a local prepared-foods tax averaging about 4.5 percent is tacked on to the sales tax, bringing the total tax on restaurant tabs to around 9 percent, which begins to be rather noticeable.
While cities and towns can impose a meals tax by ordinance - and almost all have done so - counties may levy it only by a referendum of voters. By the end of 1994, just 21 of Virginia's 96 counties had imposed this tax. Many had asked in vain for voters to approve a meals tax, which may provide a more accurate picture of the attitudes of real voters than the Virginia Tech poll.
The General Assembly has authorized 11 localities in Northern Virginia to levy a local tax on motor fuel. This brings them about $20 million a year, mainly to support mass transit. Urban bus systems in Roanoke, Richmond and Hampton Roads are facing large reductions in federal aid that has paid about half their operating deficits and 90 percent of capital outlays. They would dearly love to levy a local motor-fuel tax. But the legislature, looking to raise the state fuel tax, isn't likely to grant more variances.
There are several other sources of state revenue that most taxpayers either don't pay, or do so only indirectly. Virginia's 6 percent tax on corporate profits raises about $400 million a year. Compared to other states, this is a bit on the low side, but no increase is likely given the dog-eat-dog competition now raging to attract new business.
Virginia enacted its first "death" tax in 1844 with a rate of 2 percent. It now reaches a maximum of 16 percent on estates in excess of $10 million. But heirs receive a credit against federal estate taxes for those paid the state. Under present law, most estates pay no inheritance tax, which raises only about $50 million a year.
A larger source of "unseen" revenue is the tax on insurance premiums, raising about $220 million a year for state coffers. Coming down the scale, we find the franchise tax on the capital of banks, which raises some $25 million a year for the state and localities.
The state cigarette tax of 2.5 cents a pack is the lowest in the country and raises only $15 million a year. But Virginia is one of only six states allowing localities to impose their own tax. At least 31 Virginia counties, cities and towns impose local taxes as high as 35 cents a pack, and raise about $30 million a year. As with the meals tax, cities and towns can do it by ordinance, while counties can't. So far, the tobacco lobby has been successful in restricting the local tax to two counties only, Fairfax and Arlington, and limiting it there to 5 cents a pack.
In 1993, taxes on alcoholic beverages and profits from ABC stores generated $140 million for the state, of which $17 million was remitted to localities. Of course, sales taxes are also collected on all these sales.
In the latest year for which complete data is available, state and local taxes per capita in Virginia amounted to $2,068. This placed us 30th among the states and the highest in our region. But when tax collections were expressed as a percent of personal income, Virginia ranked 44th at just over 10 percent, compared to a national average of 11.59 percent.
Of course, that seemingly small difference is highly significant. It means a typical Virginia family earning $50,000 might pay almost $800 a year less in state and local taxes than the national average.
Ray L. Garland is a Roanoke Times columnist.
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