The government apparatus in Virginia will extract $38.6 billion in taxes, fees and charges from the public this year. As the General Assembly convenes the 2011 regular session today, some lawmakers are suggesting this considerable sum isn't enough. They want more wealth transferred from consumers' pockets into Richmond's coffers.
Take a bill introduced by Del. David B. Albo, Del. Thomas Davis Rust and Del. Joe T. May - all Republicans representing northern districts. The trio propose applying Virginia's corporate tax to the sale of services performed by out-of-state businesses in the commonwealth. That means a technology firm based in California that, for example, optimizes a computer network in Alexandria without ever stepping foot in the Old Dominion would have to give Virginia a cut of the action. Supporters insist their measure merely closes a "loophole" in the state code that treats goods and services differently for the purposes of taxation. They argue that updating the law to match the practices of about a dozen other states would level the playing field with those jurisdictions and encourage job creation.
"To me it seems like a no-brainer," Mr. Albo told The Washington Times. "[The current law] harms Virginia businesses, and on top of that the out-of-state company has absolutely no incentive whatsoever to put jobs in Virginia. The last thing a California company that does multistate services wants to do is plop jobs in Virginia because, if they do, they're going to get taxed."
Yet this proposal is not a simple rebalancing of the code to provide relief in one area while increasing the burden an equal amount in another. The measure instead is being marketed as a way to generate between $150 million and $200 million in net revenue for the highway fund. It's naive to imply that these funds will come from nameless out-of-state firms without consequence to the commonwealth. To the contrary, it's likely the cost would be passed directly to Virginians in the form of higher prices for services.
While the Joint Legislative Audit and Review Commission suggested closing this "loophole," the same legislative oversight body also examined the option of eliminating the corporate income tax in its entirety. That's the kind of change that would help bolster Virginia's business-friendly reputation and attract more firms to relocate from high-tax states without harming residents already overwhelmed by the burden of government levies.
Such tax cuts are less popular among politicians who don't like making hard choices and ditching popular but wasteful projects. Too often, squishy Republicans believe a vote against a direct tax increase is all it takes to earn the "anti-tax" label - as if indirect extractions from the populace are somehow different when called a "fee" or imposed "out-of-state." It's no coincidence the corporate tax idea comes from Mr. Albo, architect of the reviled "abusive driver fee" that imposed a $1,050 tax on speeding a mere 10 miles-per-hour over the limit on a rural interstate. A virtual revolt of motorists forced greedy legislators to back off and return the loot collected.
The General Assembly ought to look for the money it needs to address Northern Virginia's congestion problems by canceling boondoggles like the Dulles Metro extension, the cost for which has exploded to $6.6 billion.
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