- The Washington Times - Friday, March 19, 2004

RICHMOND — The House of Delegates yesterday passed a revenue plan that would end tax exemptions for some businesses, and gave preliminary approval to a balanced budget that includes a referendum on tax increases.

The House’s two-year, $58 billion budget is essentially unchanged from the one it has offered in its stalemate with the Senate, which has sought to increase a variety of taxes, including those on income and sales. The only new element — the tax-increase referendum — would not affect the bottom line of the House budget and is likely to be rejected by the Senate.

House Republicans, who have opposed any general tax increases, said ending tax exemptions for some industries — including airlines, public utilities, telecommunications companies, overseas shippers, railroads and the media — is as far as they are willing to go toward increasing revenue. The proposal would raise about $520 million, according to the bill’s proponents.

House Appropriations Chairman Vincent F. Callahan Jr. challenged opponents of the business-exemption proposal, saying that any compromise budget without it likely would include massive spending cuts.

“Let me warn you: If this bill does not pass, you’re going to see the nastiest, ugliest piece of work you’ve ever seen in your entire life,” said Mr. Callahan, Fairfax County Republican. “This is all we have to work with. Please give it to us.”

Several Democrats, who had been prevented from debating the bill Thursday, rose to criticize it yesterday. “This is bad public policy and it’s going to hurt people in Virginia,” said Delegate Kristen J. Amundson of Fairfax County.

The House approved ending business exemptions in a 53-39 vote, then embedded the measure as a revenue source in its budget, which passed in Mr. Callahan’s committee in a 19-4 vote.

The House budget now calls for a referendum on tax increases Nov. 2. The referendum would ask voters if they want to raise the sales tax by 1 percent and add two new income tax brackets. If voters approve the referendum, the General Assembly would figure out how to use the extra money during the 2005 session.

Budgets usually pass through the Appropriations Committee with unanimous votes, but a few Democrats voted against it because of the referendum. However, the majority backed the measure.

“One June 30th at midnight, we close down government if we don’t have a budget,” said Delegate Johnny S. Joannou, Portsmouth Democrat and a budget negotiator who opposes tax increases. “There is no better arbitrator than the people of Virginia. They should have the final word.”

Neither the Senate nor Gov. Mark Warner supports the referendum.

“This is going nowhere. It’s a rejection of responsibility and it moves them one step farther away from compromise,” said Ellen Qualls, spokeswoman for the Democratic governor.

The full House will vote on the budget today and give it final passage tomorrow.

The Senate, which earlier passed its own $60 billion budget that includes about $1.6 billion in sales and income tax increases, will then receive the House budget.

Each chamber is expected to reject the other’s budget, appoint conferees and begin negotiations.

Mr. Warner has called the Republican-controlled General Assembly into a special session because of the House-Senate deadlock on the budget.

Meanwhile, House Democrats are calling for eliminating the car tax to balance the budget.

“The car tax is the disease in the budget,” said Delegate Kenneth R. Melvin, Portsmouth Democrat. “We should tell the citizens the absolute truth — we can’t afford it. We thought we could, but it’s like a blob just eating money in the Treasury.”

Local governments each year levy a tax on the value of residents’ vehicles, of which the state pays 70 percent as part of the 1998 Personal Property Relief Act. Current estimates show that Virginia pays about $890 million a year, a figure that is expected to rise to $997 million in 2006.

The car tax is one of the largest expenses in the state budget, behind only education and health care.

House Minority Leader Franklin P. Hall of Chesterfield County said Democrats might put forward a proposal that would end the car tax. “There’s some discussion going on,” the Democratic leader said.

But Mr. Callahan said it’s unlikely that Democrats will produce a proposal. “We’ve come about as far as we’re going to go,” he told The Washington Times yesterday.

Mr. Callahan said planners have abandoned the notion of phasing out the car tax in the next budget, adding that the full phaseout might be possible in the 2007-08 budget, depending on how well state revenue fares.

Former Gov. James S. Gilmore III, a Republican, won election in 1997 on a pledge to repeal the unpopular car tax, estimating the state would lose about $620 million per year. The repeal of the car tax has stalled at 70 percent because of the weak economy, and Mr. Warner’s proposed to fully eliminate it by 2008 was rejected by the legislature.

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