DATE: Wednesday, June 4, 1997               TAG: 9706040003

SECTION: LOCAL                   PAGE: B11  EDITION: FINAL 

TYPE: Opinion 

SOURCE: Glenn Allen Scott 

                                            LENGTH:  108 lines

VIRGINIA TAXES THE POOR AND SHORTCHANGES LOCALITIES

Call what's happening in the only other state that that conducts off-year elections for governor the ``Virginianization of New Jersey.''

New Jersey was the first state in which sand replenishment of beaches was institutionalized.

Critics of forever putting back what the sea forever washes away label other Eastern Seaboard states' embrace of the practice, following New Jersey's lead, the ``New Jerseyization of the East Coast.''

Nearly four years ago, when Republican George F. Allen was overtaking Democrat Mary Sue Terry in the race for the governorship of Virginia, Republican Christine Todd Whitman tilted the gubernatorial contest in New Jersey her way by promising a 30-percent cut in the Garden State income tax.

Spoilsports hooted that slashing the income tax would force New Jersey's localities to raise the real estate tax. Defenders of the Whitman plan accurately pointed out that property taxes had long been going up anyway.

The voters chose Whitman as governor. The New Jersey legislature cut income taxes. Taxpayers cheered.

Property taxes are still rising, but not as fast as they did before Whitman was elected - although fast enough to cancel out the shrinking of their state income tax bills. Many taxpayers, particularly retirees, are unhappy about the trade-off. But Whitman argues that taxpayers would be paying more than they are if she hadn't cut the state levy. That's plausible. But the full impact of the lowering of the state tax in phases could yet cause local taxes to spurt skyward.

Not surprisingly, Whitman's tax cuts have caused a state-budget crunch. The New Jersey is now trying to win approval in the legislature for a $2.75 billion bond issue to repay money ``borrowed'' from the state's pension fund to balance earlier budgets. The pension-fund money should never have been tapped, as Whitman's foes said when it was.

Anyway, welcome, Garden Staters, to Virginia, where the state tax burden is light and the local tax burden tends to be heavy. (Actually, New Jersey and Virginia are poles apart taxwise. New Jersey's overall tax burden - federal, state, local - ranks third among the 50 states; Virginia's ranks in the 40s.) But if New Jersey's tax burden is far greater than Virginia's, as is its per capita income.

If Virginia's tax structure were represented topographically, localities would be mesas of varying height rising sharply above a below-sea-level flatland of state taxes. That's because the Virginia state government funds a smaller portion of localities' budgets than most other states.

Virginia is proud of its low individual and and corporate income tax rates. Governors and legislators boast of the commonwealth's light tax touch. State economic-development officers celebrate low state taxes (and low worker pay) as inducements to companies to place headquarters or branches in Virginia.

All of this happy talk obscures less attractive inequities in the commonwealth's mishmash of state and local taxes.

An April 23 Virginian-Pilot editorial called upon Virginia's gubernatorial candidates to propose ``eliminating the income tax on the working poor.'' Not much chance of that, but I nonetheless second the motion.

An analysis by the Washington-based Center on Budget and Policy Priorities revealed Virginia to be ``one of only seven states that tax `very poor' families - those living at less than half the poverty level.''

Specifically: ``In Virginia, a single parent with two children is required to file when earnings pass $5,400, even though that family's income is still $7,111 shy of the poverty level. Meanwhile, a two-parent family of four must pay income tax when earnings reach $8,200, about half the $16,021 poverty threshold for that group.'' Alabama, Hawaii, Illinois, Indiana, Kentucky and New Jersey are the other states in this Hall of Shame; they tax citizens at income levels lower than Virginia's!

Virginia's maximum corporate income tax rate is 6 percent, among the lowest in the nation. North Carolina's is 5 percent. And 10 states do not tax corporate income at all.

Many economists contend that taxing corporations is double taxation, because shareholders are taxed on dividends and capital gains. Whichever side of the argument one takes, Virginia's kindness to corporations comes at the expense of other taxpayers. So does Virginia's generosity toward affluent taxpayers.

Virginia's unfairness toward the working poor (to whom the lower income-tax rates apply) shows not only in the income tax. The working poor may not buy much food, clothing and medicine, but the sales tax on these essentials hits poor and lower-middle-income families hard each time they buy them. Still, that seems to be the Virginia way, however ignoble, when taxes are the issue.

How Virginia's levies affect the working poor is a shade off the point when speaking of the state's shortchanging of localities. But the injury to both low-income Virginians and localities is the product of the same philosophy: To underwrite state spending (the general fund budget is roughly $18 billion a year), the commonwealth relies heavily on regressive taxation. Shifting to even a moderately progressive state income tax is still unthinkable in Virginia.

State politicians get some mileage from promoting tax cuts, as James S. Gilmore III, the Republican candidate for governor, is doing by proposing to replace the locally assessed personal property tax with appropriations to localities from the state treasury. But the political mileage is limited, as Republican Governor Allen found out.

Virginians seemingly understand that whittling a tax here will increase a tax or a fee there - or damage programs that they deep essential or desirable. Allen's tax-cutting zeal stimulated opposition from state business leaders alarmed over the harm being done to state colleges and universities, although they didn't suggest that bumping up the corporate tax or the individual income tax rate for upper-income Virginians might provide the needed funding.

Meanwhile, localities struggle to expand revenue to meet rising demand for public services. Because the state sharply restricts their revenue-raising options, the cities and counties are overly dependent upon real estate and personal property taxes and, increasingly, fees for this and that.

Thus does the state see to it that taxpayers' wrath is directed more at city councils and boards of supervisors than at the General Assembly and Governor's Mansion. Not much to admire in that. MEMO: Scott is associate editor of the editorial page of The

Virginian-Pilot.

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