Ken Plum: Taxes

kenplum2Governor Terry McAuliffe will address the House Appropriations and Senate Finance Committees on December 17 in a statutorily required report on the state’s finances.

The news will not be good nor will it be surprising.

For the last two years the state has seen a steady erosion of its revenue base. Already significant cuts have been made in the budget, and the state has dipped into its rainy day fund. The problem has not been significant new spending programs; to the contrary the state has been reducing its spending over the last couple of years even though the state’s economy and employment levels have seen modest growth. Representatives of local government and colleges and universities can attest to the budget reductions.

A significant part of the revenue shortfall experienced in Virginia and in other states that have an income tax was the change in taxpayer behavior to accelerate gains into tax year 2012 in advance of federal rate increases on high-income taxpayers. Payments were high in the spring of 2013 but dropped dramatically in FY2014 because of the accelerated gains. With adjustments that were made to the forecast by this and other factors there was a need to make up a $2.4 billion shortfall for the biennium.

Most of the reductions have been made with about $272 million cuts still needed in FY2016. Clearly there will not be any additional money under the current budget structure for higher education, preschool, mental health, or state employees who have had few raises in recent years.

The legislators on the money committees already know much of what the Governor will say. Money is short for the state as it is for many individuals. We will need to tighten our belts even further. According to press accounts some members of the Senate Finance Committee even used the “T” word, suggesting that rather than further cut critically important programs, we consider raising revenue. There is no way that a Tea Party dominated House of Delegates would raise taxes, especially during 2015 when all 140 members of the General Assembly are up for election.

The reported discussion was more about tax preferences or loop holes that might be changed to increase revenue.

Nearly one billion dollars of the state’s $18 billion of general fund monies go to pay a portion of a taxpayer’s car tax obligation to local government. The campaign against the car tax once elected a governor to office and despite the fact that it only partially pays the local car tax is not likely to be revisited. Ironically, Fairfax County and Northern Virginia taxpayers make out well with the car tax program taking money that might otherwise go to poorer communities. If the state expanded Medicaid it could pick up over $200 million for the budget.

Tax preferences related to the estate tax repeal, coal severance tax, and film production tax credits may be examined. The 2015 session is not supposed to focus on the budget, but the topic is likely to dominate the term. Even the “T” word may be whispered-but not likely acted upon.

Ken Plum is a member of the Virginia House of Delegates.

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