Thursday, January 8, 2004

With the Virginia General Assembly set to begin its session next week, it has become clear that big businesses and small businesses have sharply different views on Gov. Mark Warner’s tax-increase package. Big business is leaning in favor of higher taxes, while small business groups, like the state chapter of the National Federation of Independent Business (NFIB), are opposed. The NFIB, which polled employers and found 61 percent opposed to the governor’s plan, noted that the results show that Virginia businesses need more economic freedom rather than “an increased tax burden that stifles opportunity.”

While Mr. Warner’s proposal contains some positive points, including reductions in the sales tax on groceries and elimination of the estate tax for families of small business owners, these are outweighed by the tax increases sought by the governor — chief among them the creation of a new, higher income tax rate for people making more than $100,000 a year, and large increases in sales and cigarette taxes. In all, the governor estimates his tax increases will raise $1 billion over the next two years.

Mr. Warner has yet to come forward with any proposals to reduce the rate of growth in state spending — something that Republicans in the House of Delegates, led by Speaker Bill Howell, are expected to do in the next few weeks. Judging from the public reaction thus far, Virginia’s largest firms and large corporate lobbies seem relatively comfortable with the governor’s high-tax agenda. For example, Mike Anzilotti, chairman of the Virginia Business Council (an organization comprised of the chief executives of the state’s largest companies), criticized Mr. Howell for opposing higher taxes. James W. Dyke, chairman of the Northern Virginia Roundtable, has said his organization will push hard for more revenue for Richmond.

Asked about the contrasting views, Gordon Dixon, Virginia state director of NFIB, said that larger companies can afford to hire lawyers and accountants to search for ways to lower their taxes. Small firms, by contrast, cannot afford to do so, and consequently, tax increases hit them much harder. Many small business owners, he said, include their business income on their personal income tax returns and would be hard hit by Mr. Warner’s proposal to increase the top rate from 5.75 percent to 6.25 percent.

At a minimum, the NFIB’s stance against Mr. Warner’s tax-increase package should serve as a warning to Republicans like Senate Finance Committee Chairman John Chichester, who are inclined to support higher taxes. They may well trigger a political backlash from small businessmen who believe that spending restraint, not a tax increase, is the way to solve the state’s fiscal problems.

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