- The Washington Times - Tuesday, February 17, 2004

RICHMOND — Virginia’s Republican-led House, sending a signal that some form of tax increase is likely to be a part of the legislative solution to the state’s budget woes, passed a bill yesterday that would raise $520 million in revenue from businesses by eliminating a variety of exemptions.

The proposal, sponsored by Delegate Phillip A. Hamilton, Newport News Republican, surfaced last week and has emerged as the House answer to Sen. John H. Chichester’s $2.5 billion package of tax increases, which also advanced yesterday, winning unanimous endorsement from the Senate Finance Committee.

Antitax groups yesterday called the endorsement of the two tax-increase plans the “perfect storm” for taxpayers, who would face higher taxes under the Chichester plan and higher prices on goods and services under the Hamilton plan.

House lawmakers voted 63-34 for the Hamilton plan, which would eliminate tax breaks for Virginia corporations. The bill goes to the Senate. It would wipe out sales-tax exemptions for such major industries as railroads, trucking, overseas shipping, airlines and utilities.

The Chichester plan boosts sales taxes by 1 cent to 5.5 percent, raises the gasoline tax by 3 cents to 20.5 cents per gallon, and reorders income-tax deductions and brackets, creating a new rate of 6.25 percent for income between $100,000 and $150,000 and a new rate of 6.5 percent for income of $150,000 or higher.

It also eliminates some corporate-tax loopholes.

“This bill is not about cobbling together a revenue source that will satisfy the heat of the moment,” Mr. Chichester, Stafford Republican, said, calling his plan a “thoughtful statement” and “a comprehensive and far-reaching investment plan for Virginia’s future.”

The panel also approved Mr. Chichester’s plan to raise the cigarette tax from 2.5 cents to 35 cents and impose a 10 percent tax increase on other tobacco products, raising $117 million in 2005 and $229 million in 2006.

The measures will be debated by the full Senate this week.

The two tax plans arm state budget writers with the numbers they need to craft a budget by Sunday that meets Virginia’s obligations to education and health care while preserving its coveted triple-A bond rating.

But antitax groups are furious and say the state’s taxpayers will be forced to pay — no matter which plan ends up victorious.

“You have a perfect storm of tax increases. Both plans will hit the pockets of the average taxpayer,” said James Parmelee, president of Fairfax-based Republicans United for Tax Relief. “Businesses will simply pass tax increases on to their customers, and that will hurt the economy.”

Mr. Parmelee and others predict that businesses forced to pay higher taxes ultimately would raise their prices on goods to consumers.

Some critics also said that the measures would cost the state jobs.

Grover Norquist, president of Americans for Tax Reform, yesterday criticized lawmakers for approving the business-tax increase without proposing a corresponding tax reduction for residents.

“To move into the realm of being a high-tax state will be very damaging to the state over the next 10 years,” he said, adding that people, money and businesses “won’t move here.”

The Hamilton plan was introduced Friday and zoomed through the House with a speed that stunned lobbyists for the targeted businesses.

Mr. Hamilton argues that his plan does not constitute a tax increase; it simply eliminates tax breaks to generate revenue for a budget projected to be $1.2 billion short of its needs.

“There’s nothing that’s being increased in this bill,” he said. “The [sales] tax rate is 4 percent before and it will be 4 percent afterward. This is about fairness and equity, and I don’t feel it’s a tax increase at all. If I go out and buy something, I have to pay 4 percent on it.”

Democratic Gov. Mark Warner, meanwhile, issued a statement yesterday that called the Chichester plan a “bold proposal.”

The governor said the Hamilton plan “only partially meets our needs” and hasn’t been reviewed to gauge its likely effects on jobs and the economy.

Virginia Chamber of Commerce lobbyist Steve Haner said he is worried that higher prices will be passed on to consumers and that the legislation might dissuade companies from moving into the state.

“The businesses will recover their costs. But there is another unintended consequence — some of the companies can move parts of their operations elsewhere,” Mr. Haner said. “But the chamber is not against it yet; we’re in a frantic study mode.”

The chamber isn’t the only group studying the plan. On Friday, state tax officials warned that they could not vouch for the revenue estimates at the heart of the legislation.

• This article is based in part on wire service reports.

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