- The Washington Times - Monday, August 18, 2003

RICHMOND — The legislature’s Tax Reform Commission proposed broad revisions yesterday to personal income-tax earnings brackets to ease the burden on the working poor and eliminate nearly all deductions.

The panel also proposed extending the sales tax to all services, a list as diverse as lawyers’ fees and dry-cleaning bills, and ending exemptions such as those that shield nonprofit groups, including churches and civic organizations, from paying sales taxes.

Nearly a dozen interest groups, including business representatives, media organizations and retiree associations, immediately attacked the proposals, signaling the start of months, perhaps years, of intensive lobbying efforts intended to safeguard specific tax breaks.

“There wasn’t a single one of these whose ox wasn’t at least poked a little bit, if not gored,” said Delegate Allen L. Louderback, Luray Republican and author of the personal income-tax and sales-tax proposals.

He is part of the 12-member commission drafting a plan to restructure Virginia’s 80-year-old patchwork of tax laws, which has been criticized for taxing the income of the working poor at the same rate as the wealthy while some revenue sources remain untaxed.

The Republican-dominated commission broadly outlined its plans during the most comprehensive public work session since it was formed in July, months before Gov. Mark Warner, a Democrat, intends to present his tax-reform plans.

Mr. Warner has said he will not outline his proposals until after the Nov. 4 elections for all 140 General Assembly seats.

“I know that’s a risky thing to do in an election year, to put something out there and let people talk about it,” Mr. Louderback said.

“Some of us would call that leadership,” replied the Rev. J. Fletcher Lowe of the Virginia Interfaith Center for Public Policy, an organization that espouses the interests of low-income families.

Although the legislative plan will boost taxes for some Virginians and lower them for others, it will not increase what the state collects, said Sen. Emmett W. Hanger Jr., Augusta County Republican, the panel’s co-chairman.

Under a system of five progressively higher personal income-tax brackets, Virginians earning $14,999 or less would pay no tax under Mr. Louderback’s plan, while earnings of $49,001 or more would be taxed at the top rate of 6.25 percent.

Virginia’s current top income-tax rate, 5.75 percent, is levied on annual incomes as low as $17,000.

With most every income-tax deduction, subtraction or addition eliminated, Mr. Louderback said, the state income-tax form would shrink from 11 pages to 1. Gone would be state deductions for interest paid on home mortgages and those parents receive for children, deductions that would still be allowed on federal income taxes.

The only deduction that would survive under Mr. Louderback’s plan would be for Social Security income.

“Maybe some people won’t buy the new $1 million home now and instead stay with their $700,000 home,” Mr. Louderback said.

His proposal would replace the flat age deduction with an income-based means test. Virginians 62 to 64 are allowed a straight $6,000 deduction on their state income taxes, and it increases to $12,000 for those 65 and older, no matter what their incomes.

Under the new plan, people who make less than $35,000 a year would get the same deductions at the same ages, but the deduction would decrease for higher income brackets.

About 400,000 Virginians take the standard age deduction, said Oscar J. Honeycutt, 86, a legislative affairs representative for the 22,000-member National Association of Retired Federal Employees in Virginia.

An income-based means test, he said, would create different classes among retirees and punish those who survived the Great Depression, paid a lifetime of taxes and live on fixed incomes.

“We’ve heard all this discussion of the affluent elderly. Well, that’s a fallacy,” Mr. Honeycutt told Mr. Louderback’s subcommittee studying personal income taxes, and sales and use taxes.

Personal income-tax revenues would decrease by several hundred million dollars under the changes. It would be more than offset, however, by an estimated $1.8 billion in additional revenue from dropping the sales-tax rate from 4.5 percent to 4 percent and applying it to services as well as goods. Services that would be taxed include pricey fees from lawyers, doctors and hospitals, and those as commonplace as laundry bills.

“We are concerned about any change in the bottom line to you, the consumer,” said Dave Norford, a lobbyist for laundry and dry-cleaning businesses in the Mid-Atlantic region. “When you see a $15 order from one of our plants become $16.25, that will give you pause.”

Advertising would also be subject to a sales tax, and that alone would increase the price of doing business across the board, said representatives of Virginia broadcasters and newspapers.

“Simply put, a tax on advertising would make it harder for businesses to sell,” said Virginia Press Association Executive Director Ginger Stanley.

Delegate Harry J. Parrish, Manassas Republican, said the number of exemptions to paying the sales tax has become unmanageable. “When the sales tax was passed, there were four exemptions. Today, there are more than 700,” he said.

By broadening the sales tax, legislators could get rid of taxes they’ve tried for years to abolish, commission leaders said. Among them are sales taxes on groceries, the gross-receipts tax on businesses and professions, and the estate tax.

The sales-tax rate on groceries was cut by one-half a percentage point in 2000 in the first phase of the four-year state program to roll back the food tax from 4.5 percent to 2.5 percent. It was frozen in place in 2001 by a faltering economy. Mr. Hanger said the panel will debate whether to eliminate the sales tax on groceries.

The commission pondered finishing the phaseout of the tax cities and counties impose on personal automobiles and extending the tax cut to all cars and pickup trucks — not just those worth $20,000 or less, as the law now allows.

In 1998, lawmakers approved then-Gov. James S. Gilmore III’s car-tax rollback. It was to have been completed this year, but the economic downturn froze it in place with 30 percent of the tax on the books.

Other changes the panel discussed included ending the practice of requiring merchants to expedite sales-tax payments, a tactic used to shore up the state’s budget shortages, and making local tobacco taxes uniform across the state.

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