The debate over tax reform in Virginia will heat up today as the General Assembly convenes for the new legislative term, charging members with the task of agreeing to a state budget for 2004-2006.
If current rhetoric on behalf of Gov. Mark R. Warner's office and Republican lawmakers is any indication, the 60-day session promises an impending collision over the state's financial future.
In November, Warner released an extensive tax reform plan intended to generate $1 billion in state revenue to meet the current budget shortfall while increasing government spending on education, transportation and healthcare. The plan describes current tax policy as outdated and claims to lower tax burdens for 65 percent of Virginians.
Warner's proposal would eliminate the state sales tax for food items while raising it by one cent for non-food items, increase the tax on tobacco by 20 cents and eliminate estate taxes for farms, businesses and estates valued under $10 million. In addition, Warner calls for the creation of a higher income tax bracket for residents with taxable incomes exceeding $100,000.
"This is a plan that's fair to the people who pay the bills," Warner said in a statement. "The message is simple: we must address structural problems within the budget."
However, Warner's proposal faces an uphill battle in the General Assembly, where Republicans control the Senate and hold 61 out of 100 seats in the House.
"My guess is that he will get pieces of it but not the whole package," Politics Prof. Larry J. Sabato said. "The only thing we know for sure is that it will be a long and difficult session."
The staunchest opponent of Warner's plan is House of Delegates Speaker William J. Howell, R-Stafford, who has dismissed the need for additional state revenue through tax increases.
On Jan. 8, Warner's office released an analysis by the Virginia Department of Planning and Budget concluding that any negative impacts from the increase in the non-food sales tax and new tax rate for higher-income residents would be offset by the positive effects of increased government spending.
Specifically, the study praised the "additional expenditures targeted to improving Virginia's business climate -- through improvements in education, Medicaid spending, and transportation."
Critical of Warner's plan, Howell aided in releasing a rival economic analysis from CapAnalysis, a private firm chaired by James C. Miller, III, who previously directed the federal Office of Management and Budget and served as a chair of the Federal Trade Commission. Using statistical models, the firm focused on retail sales taxes, finding that Warner's proposal would cost the state economy 28,000 jobs and reduce personal income by $10 billion in 2006.
The report calls Warner's claim to reduce the taxes of most Virginians "misleading" since it does not include indirect effects to the economy, such as the tendency for consumers and firms to do business elsewhere when relative tax burdens increase.
Even if some families were to pay less in state taxes, the CapAnalysis study concluded that all households would experience negative effects of tax increases through an overall drag on Virginia's economic growth.
"I applaud the governor for addressing education and transportation, but ... based on this data, the adverse effects were stronger than I had anticipated," Miller said.
Though proponents of Warner's plan have criticized the CapAnalysis study for ignoring the positive impact of state spending on government infrastructure, Miller emphasized that there is no adequate way to statistically verify such a claim.
Local Del. Rob Bell, R-Albemarle, praised certain aspects of Warner's plan, but said he prefers efforts to restrain spending as opposed to raising taxes.
"I like the portions of it that deal with reform of the tax code," Bell said. "It's a starting point. Parts of it may pass, parts of it probably won't."
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