Gov. Mark Warner unveiled the details of his plan to overhaul Virginia's tax code yesterday, proposing to garner an extra $500 million a year through extensive reform that would include tax hikes for cigarettes, sales and the highest income bracket while lowering income taxes for less wealthy Virginians.
The initiative, arguably the largest of Warner's term, comes after months of secrecy. Warner Spokesperson Ellen Qualls said the governor has been working to ensure a proposal that is equitable and sensible.
"The Governor has worked for months with his finance team to come up with a plan that he thinks is both fair and addresses some of the quirks of our tax code, but also brings more money into a state that has shortfalls through the end of the decade projected," Qualls said.
The proposal will go to the General Assembly in January, where Qualls said Warner is prepared for a struggle.
"It's an ambitious plan," Qualls said. "They'll have their say on it -- we'll be fighting for our plan."
Virginia Republican leaders expressed concern over the proposed reform, particularly increasing taxes, in statements yesterday reported by the Associated Press.
Politics Prof. Larry Sabato predicted that the bill is unlikely to pass through the General Assembly without significant compromises.
"It's difficult to get a tax increase even out of a Democratic legislature in Virginia," Sabato said. "Imagine how difficult this is going to be with a heavily Republican legislature -- there may be some compromise, that's possible, but it will be difficult to get them to bite the whole enchilada."
Warner's plan as it stands would reduce the tax on food from 4 percent to 2.5 percent while increasing the sales tax from 4.5 percent to 5.5 percent. The cigarette tax would increase from 2.5 cents per pack, the lowest in the nation, to 25 cents, with an option for local governments to levy their own tax of up to 50 cents.
Warner promised 65 percent of Virginians actually would save money under his plan, which would expand lower income brackets and increase personal and dependent exemptions to offset the raised sales tax for low- and middle-income residents. Only people in the top 10 percent of income would pay a higher income tax, up to 6.25 percent from 5.75 percent.
Qualls said a chunk of the $500 million would result from closing loopholes that allow out-of-state corporations to avoid paying taxes in Virginia.
The revenue from the revamped tax code -- $500 million, Warner predicts -- would go to existing under-funded programs, Qualls said. $140 million would be divided between public colleges and universities.
The additional funds still would not remedy a predicted $1.3 billion budget shortfall over the next two years, said John Knapp, research director for business and economics at the University's Weldon Cooper Center.
Knapp noted that Warner's proposal excludes a tax on services and makes little mention of transportation needs, two areas he sees as vital to Virginia's developing economy.
"It makes a rather modest contribution toward tax reform," Knapp said. "It's moving in the right direction to pick up the results of inflation."
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