YOU CAN'T blame them for trying. Once again, populists in the Virginia House of Delegates and State Senate attempted to curry favor with the voters of the Commonwealth by promising cake and the chance to eat it too. Monday evening, Governor Mark R. Warner vetoed the legislative repeal of the estate tax, or so-called "death tax". Despite public sentiment supporting continued tax cuts, Warner did the right thing by vetoing the measure, showing great political courage that seems to escape his colleagues in the legislature, all of whom face reelection campaigns this November.
The Virginia estate tax, similar to its cousin at the federal level, taxes the remaining assets of an estate above a monetary threshold. The value may be estimated at the time of death or at any point up to six months after. This tax, more so than many others according to Republican-cited polls, was disliked by a significant portion of Virginians. It is a wonder that the legislators in question required extensive public polling to prove that the public disliked a method of state taxation, yet this was precisely the evidence presented during the debate in the legislature.
No matter how virtuous the ends of the revenue, the public will always be critical of taxation, no matter how limited. Clearly, as state revenues continue to suffer from the nation-wide economic slump, carelessly slashing state revenues is not the answer. It should be noted that cutting the estate tax does not provide significant economic stimulus for the Virginia economy. First of all, the Republican-led General Assembly has little to no track record of attempting to affect the Virginia economy through any sort of concerted economic program.
Due to the nature of the part-time Assembly in Virginia, it was forced to review thousands of proposed bills in 46 days this year. This is in dramatic contrast to the year-round federal Congress. As a result, economic packages are a rare occurrence at the state level.
Even if it had been billed as an economic stimulus during the recession, the repeal of the estate tax would predominantly affect the upper-middle to upper class. Because the tax is only applied when an estate over a significant threshold is bequeathed, the logic follows that this has little effect on poverty-line and working class families. While not purporting to be an economics major, much less an expert, prevailing theory holds that in order for a tax cut to stimulate the economy it must benefit those who will circulate the greatest proportion of the cut back into the economy. Thus, the wealthier the beneficiary of the cut, the greater the proportion of the funds that will be saved, rather than spent. This is obviously not the case in a tax repeal that gives little to no assistance to the working class.
It quickly becomes apparent that all attempts to modify the tax code by eliminating the estate tax are predominantly politically motivated. This year is an election year, and after all the bad press and sour feelings following the recent rounds of budget cuts and service reductions, everyone is looking for a few carrots to hold out to their constituency.
While proponents may defend the repeal on the claim that the estate tax breaks up small family farms, this also is not truly the case. If one were to examine the few family farms throughout the Commonwealth, rising land value from urban sprawl is the chief cause of inflationary tax payments. This is a local tax, not a state tax. However, because the General Assembly cannot attack the local tax structure -- excepting, of course, former Governor James S. Gilmore III's complicated car-tax rollback -- property taxes are out of consideration. Yet, when estates are broken up, only those with extremely low liquidity would actually force the liquidation of the farm itself. This is a very small fraction of Virginians and does not validate eliminating hundreds of thousands of dollars in generated revenues.
Additionally, legislators should consider the recent estate tax legislation from Congress. Because the tax is being phased out at the national level thanks to a similar fiscal conservative initiative, Virginia should take advantage of every dime it can raise at the state level in the mean time. Yet thanks to political considerations, the Commonwealth's upcoming elections have legislators clamoring to credit themselves with another tax cut.
In this time of economic recession, the Commonwealth needs every penny it can hold onto in order to maintain a minimal level of services. Monday night, the governor made the right decision in vetoing the estate tax repeal. Legislators are already planning to attempt an override of the veto, yet one would hope that the more practically-minded -- or at the least those with weak challenges in November -- will stand up against this all-too-frequent populist surge in the General Assembly.
(Preston Lloyd's column appears Thursdays in The Cavalier Daily. He can be reached at plloyd@cavalierdaily.com.)
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