- The Washington Times - Monday, November 24, 2003

Virginia Gov. Mark Warner yesterday proposed to raise the state’s sales and cigarette tax, gradually phase out the car tax, and increase income taxes on the wealthiest while reducing those for the working poor.

Mr. Warner said his plan would reduce taxes for 65 percent of Virginians as it completes the 1998 car tax phaseout and eliminates the estate tax for working farms and family businesses while increasing the sales tax from 4.5 percent to 5.5 percent.

His plan also would raise the state’s 2.5-cents-a-pack cigarette tax, the nation’s lowest, to 25 cents.

Mr. Warner said his budget proposal would increase state revenue by $500 million at a time when Virginia lawmakers face $1 billion in budget shortfalls.

“This is a plan that’s fair to the people who pay the bills,” said Mr. Warner, who estimated that two-thirds of Virginia residents would pay less in taxes under his plan. “I believe with all my heart that the … plan is the right thing to do.”

The Democratic governor’s toughest fight with the Republican-controlled General Assembly will be over the 1 cent sales tax increase. It defies demands by the House Republican leadership that Mr. Warner not submit any general tax increase and that any reform plan be revenue-neutral, meaning that it not yield a net increase in income for the state.

House Speaker William J. Howell, Stafford Republican, was measured in his initial response to Mr. Warner’s plan, but held to his positions against taxes.

“We will carefully study the governor’s tax plan and consider it on its merits,” Mr. Howell said. “As the tax debate begins in earnest at the state level, it’s instructive to note that lower taxes, championed by President Bush at the federal level, are producing an accelerating economic rebound.”

Other Republicans said Mr. Warner has reneged on his campaign promise not to raise taxes. “Governor Mark Warner has officially broken his solemn campaign promise not to raise our taxes,” said Kate Obenshain Griffin, chairwoman of the Republican Party of Virginia. “With the Warner sales tax increase, every single Virginian will pay more in taxes next year than they did this year.”

Democrats said the tax proposal levels the playing field for taxpayers.

“That criticism rings hollow,” said Laura Bland, a spokeswoman for the Democratic Party of Virginia. Miss Bland also said the plan would spread the burden more evenly among rich, middle-class and low-income taxpayers. “It levels the playing field,” she said.

State lawmakers will study Mr. Warner’s “Commonwealth of Opportunity” budget plan when the General Assembly convenes Jan. 15.

Mr. Warner’s plan is a mixture of rate increases and tax breaks.

His plan increases the car tax phaseout by four annual increments of 7.5 percent from 70 percent immediately to a final, 100 percent phaseout in 2008.

In addition to increasing the cigarette tax tenfold, Mr. Warner wants to allow counties to impose taxes up to 50 cents per pack in 2006, but caps total taxes on a pack of cigarettes at 75 cents.

The proposed sales tax increase would apply to nonfood items. Maryland’s sales tax rate is 5 percent. The District’s sales tax rate is 5.75 percent, although it also has taxes between 9 percent and 14 percent for meals, alcohol, rental cars, lodging and parking.

Mr. Warner proposed to trim the food tax from 4 cents to 2.5 cents by 2005. He also wants to eliminate corporate tax loopholes.

Mr. Warner’s income tax reforms would expand the personal exemption from $800 to $1,000, increase the standard individual deduction from $3,000 to $4,000, eliminate the so-called marriage penalty by raising the standard deduction for married couples from $5,000 to $8,000 and lower the tax rates on the first $20,000 of income.

State residents whose taxable income is more than $100,000 a year would have a rate increase from 5.7 percent to 6.25 percent.

Seniors now 65 or older would get their $12,000 annual age deduction, but those yet to reach that milestone will pay more. Taxpayers who are 62 to 64 years of age also keep their $6,000-a-year deduction. But after July 1, 2005, the interim deduction disappears for those who have not yet turned 62. For those not yet 65, the maximum deduction is reduced for those who earn $50,000 or more and phased out for those who make $74,000 or more.

Republicans and Democrats found some common ground in Mr. Warner’s proposal to phase out the car tax by the year 2008.

The car-tax repeal, proposed in 1998 by Gov. James S. Gilmore III, has been stalled at 70 percent since 2001 because of the state’s financial condition.

Under Mr. Warner’s proposal, the car tax would be eliminated entirely, although residents will have to wait another four years.

Mr. Warner plans to cut the portion of the annual tax that car owners pay from 30 percent to 22.5 percent in 2005. The car tax would drop to 15 percent in 2006 and to 7.5 percent in 2007 before being eliminated in 2008.

Republicans backed Mr. Warner’s car tax plan, but opposed the other proposals.

“Maybe the governor figured that he had to throw a bone to antitax people,” said Sen. Ken Cuccinelli, Fairfax County Republican. “This is a plan that the governor could have come up with on the back of an envelope in fifteen minutes. This is not tax restructuring; it’s a tax increase.”

This article is based in part on wire service reports.

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