The award for the most outlandish tax boondoggle by a Virginia Republican for the upcoming General Assembly session surely goes to Del. Terry Kilgore, who has filed a bill to give a tax credit of up to $8,000 for anyone who signs a contract to blast their cremated remains into earth or lunar orbit. Kilgore, like most politicians, doesn’t understand a simple truth about tax credits or tax expenditures, whatever one wants to call them. Each one that is placed into law is the same as a tax cut for some favored group and means something else will have to be cut to make up for the lost revenue.
A recent report by JLARC noted that Virginia right now has a tax code with almost 200 tax preferences in its individual and corporate income and retail sales and use tax systems. Those preferences result in $12.5 billion in lost revenue, equal to almost 90% of the $14.3 billion those three taxes raise each year.
The most egregious tax break in the code to me was an income tax credit available to coal companies to “promote employment” in Virginia’s coal country. JLARC reported that employment in this dying industry continues to decline, at the same time as the state loses $31.2 million in credits coal companies take against their tax bill.
Many of these tax breaks sound great at first, but the impact on the state budget doesn’t seem to enter the minds of the legislators who give knee-jerk assent to them. For example, Kilgore couldn’t begin to estimate how many rich Virginians may want to blast themselves into space or what his bill would mean to a budget already out of balance.
As JLARC noted, “Tax preferences reduce the equitability of the tax system by treating similar taxpayers differently. Tax preferences, by nature, grant special treatment to taxpayers involved in certain activities…but not others, even though they may have similar incomes. Moreover, preferences result in foregone revenue, reducing the reliability of revenues needed to adequately fund government.”
An example of just how large the loss in state income can be is the exemption of almost all services from the sales tax. That exemption reduced state revenues by a total of more than $3.5 billion in 2008. So, I don’t have to pay sales tax on my visits to my hair salon, but I do have to pay the tax on a bottle of shampoo.
Every year, two sales tax holidays, for school supplies and the hurricane preparedness, cost the state $6.3 million. Additionally, according to JLARC the state 529 college savings plan, instituted to help parents pay for their children’s college, is mainly used by citizens who make more than $100,000 per year, families that would save that money anyway without the state giving them a $4,000 tax deduction.
Virginia needs a non-partisan commission to look at the state tax system and recommend changes that will result in greater fairness and more revenue to support vital state services. And, members of the General Assembly need to stop loading up the tax system with perks and favors for their friends and contributors.