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Bills take aim at tax code to improve accountability

- The Washington Times - Wednesday, January 25, 2012

RICHMOND — Billions of dollars in tax credits, incentives and exemptions which in many cases were poorly targeted or ineffective have prompted a bipartisan push in the Virginia General Assembly for greater disclosure and better accountability in the state tax code.

Delegates David L. Englin, Alexandria Democrat, and Benjamin L. Cline, Augusta Republican, have introduced nearly identical bills that would require newly approved tax credits and deductions to include a sunset date of five years at most. Mr. Cline's bill also would require the state tax commissioner to report the estimated annual revenue loss for each state tax credit scheduled to expire in the next two years.

"As the chair of the House Conservative Caucus and one of the founders of the House Progressive Caucus, we rarely see eye-to-eye on issues," Mr. Cline said. "But when it comes to tax fairness, simplification of the tax code and making sure that taxpayers' money is used wisely here in Richmond, I think we've found a bill that we could both agree on and, hopefully, by reviewing all of our tax preferences, we'll be able to achieve that goal for the taxpayers."

The bill comes after a draft report issued in November from the Joint Legislative Audit and Review Commission, the General Assembly's investigative arm, examined 187 tax "preferences" in 2008 worth more than $11 billion that ranged from credits for the coal industry to those for low-income residents.

In sum, the incentives reduced taxpayers' liability by $12.5 billion, nearly 90 percent of the $14.3 billion in business, individual and retail sales and use tax revenue that auditors examined. The report also found that 131 incentives had "no formal oversight" and varied wildly on whether they actually served their intended purposes.

There are about 200 different credits, deductions and exemptions intended to effect a wide variety of goals, including public assistance and economic development. Three large items account for about half of the $12.5 billion - exempting services from the state's sales and use tax, exempting manufacturing materials and equipment from the same tax, and conforming the state's income tax system with federal code.

With the proper tweaking, Mr. Englin said, the state could do away with some of the credits and loopholes and actually lower tax rates without losing revenue.

Virginia's marginal tax rate currently tops out at 5.75 percent for those making $17,000 or more and its corporate tax rate is 6 percent.

Mr. Cline acknowledged that the sunset provision would be a "first step" but that he hoped an analysis of all the credits would be forthcoming. He has also proposed a bill that would eliminate the state's corporate income tax starting in 2013.

The bipartisan issue extends beyond just the two members.

A proposal from Delegate Scott A. Surovell, Fairfax Democrat, would require the state to report annually the names of recipients of tax credits valued at $1,000 or more. That item also is on the Virginia Tea Party Patriots' legislative agenda for the 2012 session.

"There's been a proliferation of these tax credits, and it's largely driven by special interests. And they feel the same way, I think," said Mr. Surovell. "In a lot of ways, a tax credit can have the same effect as the government writing a check to someone. We would never write a check for a million dollars to some business, but putting it in a tax credit ...we're basically doing the same thing as an appropriation. Your name, your amount ought to be on the Internet so people can see it."

House Minority Leader David J. Toscano, Charlottesville Democrat, has introduced his own bills that would establish a commission to examine the state's tax preferences and repeal two coal-related tax credits.

Gov. Bob McDonnell, who has made tax incentives major tools in his push to lure companies to the state, agreed that broad-based tax reform is an idea whose time has come. He added the caveat that a major overhaul to the state's tax code and all of its preferences and credits would be difficult to accomplish in a 60-day session.

"We have a sales tax where we actually exempt more than we collect, if you can believe that," he said recently. "That's over 45 years of different policies to create new exemptions and ... when a lot of policies were put in place we were primarily an agrarian economy. Now we're focused on tourism and services, and so the question is, is it appropriate to update the code? I think it is."

Mr. McDonnell, a Republican, said he was glad that both parties consider it "an issue whose time has come."

Mr. Englin agreed.

"It's nice to have things that we agree on and work together on, because there's plenty on the other side," he said.

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