A big picture look  at taxes

All three candidates for governor this year want to tinker with tax laws, but are they prepared to tackle the more difficult task of comprehensive reform? A thought-provoking analysis from the conservative-leaning Tax Foundation this week challenges the would-be governors to think more broadly about Virginia’s tax problems and potential solutions.

Republican Ken Cuccinelli wants to eliminate or cut three local business taxes: the Business, Professional and Occupational Licensing tax; the machinery and tools levy and the merchants’ capital tax. He would also lower individual and corporate income taxes. Democrat Terry McAuliffe proposes to give local governments the option to end or reduce business taxes. Libertarian Robert Sarvis favors an end to the three local business taxes and perhaps even the individual income tax, which represents two-thirds of the state’s general operating budget. He would end tax credits and deductions to make up a portion of those revenues.

The Tax Foundation analysis notes that the business tax rates are all relatively modest, but the rules on who pays what are cumbersome and vary from place to place, a nightmare for companies with multiple offices or branches. Similarly, the corporate income tax includes many credits that permit most businesses to pay nothing, but the paperwork and maneuvering necessary to qualify for those breaks represent a hidden but real burden.

Although the three candidates are running for state office, they seem most pre­occupied with taxes collected by cities, counties and towns. None offers any specifics on how those local revenues would be replaced. Tax Foundation economist Scott Drenkard offers some words of caution on that point. He notes that large towns in particular are dependent on local business taxes, with BPOL alone representing 12.5 percent of their revenues.

It’s true that some of the most annoying and illogical taxes are collected by local governments. That’s not because council members and supervisors are mean people, but because they are stuck with the taxes state and federal leaders don’t want.

The Tax Foundation offers some suggestions, each with its own shortcomings. Revenue-sharing agreements would surely be met with dark mirth from local officials who suffer annually from the fickle shenanigans of the state legislature. Increased real estate taxes would be unpopular and exacerbate existing inequities between wealthy and rural regions.

To its credit, though, the Tax Foundation doesn’t take sides in evaluating the three candidates’ tax pitches. Instead it urges them all to avoid hasty and simplistic proposals. That’s helpful advice at a time when the candidates are all tempted to make promises they think will win them votes without fully assessing the difficulties in implementing those policies or the negative consequences that could result.

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