HJR 60:Joint Subcommittee to Study
and Revise the State Tax Code
Task Force #1
June 24, 2002
Richmond
The focus of the second meeting of the task
force was on the state tax issues, primarily dealing with the income tax.
Income Tax Issues
Staff presented an issue brief for each
of 10 income tax issues that described each issue, how the current law
affects each issue, the suggested change in the law to deal with each
issue, and any revenue impact resulting from the proposed change. The
income tax issues included:
1. Conforming to federal law;
2. Eliminating the age deduction;
3. Increasing the standard deduction;
4. Providing a "personal exemption" tax
credit or increasing the personal exemption amount;
5. Adopting two tax brackets—one with a
5 percent rate on the first $50,000 of taxable income and one with a 5.75
percent rate on taxable income above $50,000;
6. Taxing social security income;
7. Increasing the tax credit for low-income
taxpayers and making it refundable;
8. Eliminating the state income tax and
replacing it with a higher sales tax;
9. Examining tax preferences (subtractions,
deductions, tax credits); and
10. Overwithholding of income tax.
The task force decided to remove two of
the issues (numbers 6 and 8) from further consideration and make no changes
in the current law. It was determined that taxing social security income
was not good policy or politics. Eliminating the state income tax was
also seen as bad policy because the sales and use tax rate would have
to be more than three times what it currently is (assuming all of the
sales and use tax exemptions remain in effect) to raise the same amount
of revenues that the income tax raises.
The remaining issues were discussed at length
but no absolute decisions were made regarding their outcome other than
all of them are still being considered. There also was some discussion
on rate reductions that could result if some or all tax preferences were
eliminated. More information regarding the fiscal impact for each issue
was gathered and presented during the Task Force’s next meeting on July
16.
July 16, 2002
Richmond
Earned Income Tax Credit
The task force meeting began with a presentation
on the earned income tax credit from a policy analyst with the Center
on Budget and Policy Priorities. The task force came to a consensus that
a state earned income tax credit is not an option. Instead the group is
looking toward an aggressive approach to deductions and changing the rate
structure. Additional discussion ensued around removing the sales tax
from food.
Work Session
The task force began its work session with
a discussion of the fiscal impact associated with a 100 percent repeal
of the personal property tax, to include personal vehicles, business vehicles,
and machinery and tools.
Staff gave a brief update on the work of
the HJR 209 telecommunications taxation subcommittee. The subcommittee
will continue its work by looking at the changes recently made in other
states, including Florida, North Carolina, and Illinois, and will report
to the joint subcommittee studying the state tax code later this year.
The following issues, identified during
previous task force meetings, were presented by staff and discussed by
committee members:
1. Appropriate mix of general fund taxes;
2. Distribution of a portion of the state’s
annual individual income tax revenues to localities;
3. Constitutional amendment requiring a
sharing of state individual income tax revenues with localities;
4. Maintenance of a low tax burden on businesses;
5. Tax incentives for economic growth;
6. Equalization of the taxing authority
of counties and cities;
7. No new unfunded mandates on local governments
by the Commonwealth;
8. Creation of a tribunal, not located within
or reporting to the Department of Taxation, to hear taxpayer appeals;
9. Creation of a permanent body to analyze,
on a continuing basis, the fiscal needs and resources of Virginia’s state
and local government;
10. Tax simplification—more user friendly;
and
11. Local user fees.
An additional subcommittee was formed to
look at issues 4 and 5, specifically the preferences (subtractions, deductions,
exemptions, tax credits) outlined in the Code. The subcommittee will review
the preferences and determine whether they are still effective or obsolete.
The task force discussed issue 6 at length and requested additional information
about state funding for counties and the difference in services offered
between counties and cities.
Several questions were raised by the task
force for its next meeting and a request that a representative from the
Morris Commission come to explain issue 9, creation of a permanent body
to analyze the fiscal needs and resources of state and local government.
In addition, the discussion of local user fees and the administrative
procedure for tax appeals was placed on the agenda for the next meeting.
To date, the task force has received a wealth of information and intends
to formulate more concrete policy statements and legislative proposals
at its next meeting.
Meeting Schedule Changes
The full joint subcommittee had previously
scheduled a meeting for August 19, 2002. Task Force #1 and Task Force
#2 agreed that more work needed to be done on their respective issues.
As a result, the separate groups will meet and members will be polled
for another date for a joint meeting. Task Force #1 members also agreed
that public hearings would have to occur later in the year (possibly in
October) than previously discussed due to the extended work sessions.
Task Force #2
June 26, 2002
Richmond
New Zealand Experience
Maurice P. McTigue, a distinguished visiting
scholar from the Mercatus Center at George Mason University, made a presentation
concerning New Zealand’s tax restructuring experience. In particular,
Mr. McTigue suggested certain recipes for successful tax restructuring
based upon his experience with the New Zealand process.
He suggested, for example, that (i) the
public must understand that a problem exists with the current tax structure;
(ii) solutions must not be latched onto too quickly in the process of
restructuring; and (iii) the new tax system should be one that can last
a long time.
Mr. McTigue said that some of the main principles
that guided the tax restructuring in New Zealand included: simplicity,
fairness, competitiveness, diminished impact on decision-making in the
marketplace, and revenue neutrality. He said that all tax preferences
should be examined closely. Those that are deemed not in furtherance of
a well-defined desired public policy should be abolished and that those
that are should be transformed into targeted direct appropriations.
Finally, Mr. McTigue advised that consideration
be given to "user fees" where appropriate and that consideration be given
to the feasibility of transforming some government organizations into
taxpaying entities.
Issues
The task force then briefly discussed many
of the major issues assigned to it, including
- What policy to recommend regarding current
and future sales and use tax exemptions;
- Whether to expand the services on which
the sales and use tax is imposed;
- The appropriate rate of sales tax on
motor fuels, vehicles, aircraft, and watercraft;
- Whether Virginia should conform its
estate tax to the federal law;
- Whether the BPOL tax should be abolished
and if so, what revenue source(s) would be used to replace the lost
revenue; and
- What sources of revenue (new and old)
should localities be able to utilize to increase local revenue.
Regarding the issue of increasing revenues
for localities, Chairman McDonnell noted that there are three main ways
of accomplishing this goal: (i) the Commonwealth sharing revenues with
localities (e.g., a certain portion of income tax revenues); (ii) the
Commonwealth assuming all or a portion of the cost of certain local services;
and (iii) the Commonwealth permitting new or expanded sources of local
revenues (e.g., a local income tax). In this regard, Delegate McDonnell
requested that staff obtain information that shows the extent to which
localities utilize current tax authority.
The next meeting of Task Force #2 is scheduled
for July 30, 2002, at 10:00 a.m. in Senate Room A of the General Assembly
Building.
Co-Chairmen:
The Hon. Emmett W. Hanger
The Hon. Robert F. McDonnell
For information, contact:
Joan E. Putney
Mark Vucci
David Rosenberg
Division of Legislative Services
Website: http://dls.state.va.us/taxcode.htm
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