If Virginia's antiquated tax code is not reformed to provide new state revenue, the Commonwealth will be unable to fund basic services such as public education at former levels of quality, a University economist said.
John L. Knapp, director of economic research at the University's Weldon Cooper Center for Public Service, warned Virginians Friday in a press release.
"I think the tremendous talk and emphasis about reform being necessary is really somewhat of a distraction from what I think is a great problem," Knapp said yesterday. "The state is just not bringing in enough revenue to meet the basic demands on it for higher education, for K-12 [education], for Medicaid and many other functions of modern government."
Two days after the election, Nov. 6, the state's Commission on Revision of Virginia's Tax Code will meet in Richmond and hear a proposal from Gov. Mark R. Warner detailing his plans for restructuring Virginia's tax system to enable state government to better function in a high-tech economy.
This will be the first time Warner formerly discusses his proposal.
Knapp argued that major flaws in Virginia's current tax policy largely stem from overly generous exemptions extended over the past few decades, including a costly income tax exemption for affluent elderly people and the exemption of non-prescription drugs from the sales tax.
"I think the first place to go [for new revenue] is the income tax," Knapp said. "We need to update the exemptions, the standard deductions, broaden the bracket and remove the tax preference for the elderly, and then increase the rate somewhat depending on how much money you want to raise."
Car tax relief, championed by former Gov. James S. Gilmore, which now costs Virginia more than $800 million a year and could eventually cost up to $1.3 billion, should also be reevaluated, Knapp said.
"I think eventually from a policy standpoint they'll have to take it on," he added.
Politically, however, Politics Prof. Larry J. Sabato said it will be next to impossible for any tax increase proposals to succeed in Virginia's current political climate.
"A good solid majority [of Virginians] is opposed to raising taxes -- major taxes -- to benefit services," Sabato said.
Warner spokesperson Kevin Hall said raising taxes to increase revenue is "certainly one option." He dismissed the Republican-dominated General Assembly's frequent use of the term "revenue-neutral" in describing its approach to tax reform as ambiguous and overly limiting.
"The difficulty when you are discussing taxes and this concept you hear so much about -- revenue-neutrality -- is that when you start putting conditions on the outcome before you get there, you severely limit your ability to come up with a plan that's modern, that's fair and that's efficient," Hall said.
House of Delegates Finance Committee Chair Harry J. Parrish, R-50th, said he agreed with Knapp's assessment that Virginia's current tax code has too many exemptions and does not meet state government's revenue needs.
"We've got to address the elimination of most of these exemptions and get the tax laws in the 21st century," Parrish said.
Parrish said he would not advocate the raising of taxes to increase revenue and stressed that tax reform should "be as close to revenue neutral as possible."
"If we eliminate the giveaway programs, we can then fully fund the rest of the car tax" relief, he said.
Parrish did, however, leave open the possibility of raising the gasoline tax, which he described as a "fee" and not a tax because "anyone who doesn't drive a car doesn't pay it."
"We haven't raised any taxes [in the past few years], but the fees have increased about $230 million," he said.
According to Knapp, Virginia's grappling with its antiquated tax code will not be a simple task.
"I wish I could draw it out and pretend it's all very simple, but it is all very complicated and mixed into the facts there are a lot of value judgments," he said.
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