Time for tax reform in Virginia

Published 10:18 am Wednesday, December 10, 2014

by Bill Bolling

These are challenging economic times for Virginia’s state government. For the past several months, headlines have highlighted the impact that federal budget reductions, also known as sequestration, are having on Virginia’s economy. We knew this would happen because our state’s economy is so closely tied to federal spending. It is not a surprise.

As a result, Gov. Terry McAuliffe and the General Assembly have already had to reduce state spending plans by more than $1 billion, and significant additional budget reductions could be required before the state’s economy stabilizes.

In these types of challenging economic times it is inevitable that some will call for higher taxes to support continued state spending. That would be the wrong approach. Instead, the focus should be on targeted efforts to promote business expansion and consumer spending.

One way this could be accomplished is by having an honest discussion about the need for true tax reform in Virginia.

At the outset, let me stress that true tax reform cannot be a euphemism for a tax increase, as was the case in 2001, when former Gov. Mark Warner and the General Assembly joined together to pass the largest tax increase in Virginia’s history under the guise of tax reform.

True tax reform must look for ways to generate additional tax revenue by closing tax loopholes and streamlining the tax code, while at the same time providing targeted tax relief in areas that would encourage economic growth.

Virginia’s current tax code is full of exemptions, exceptions and credits that lower state revenue by billions of dollars every year. In 2011, the General Assembly’s Joint Legislative Audit and Review Commission (JLARC) estimated that current loopholes in Virginia’s tax code reduced state revenues by $12.5 billion.

The time has come for all of these programs to be carefully reviewed. Each program should stand on its own merit. My belief is that many of these programs could be eliminated or significantly reduced, which would produce hundreds of millions of dollars in additional tax revenue for the state.

The question then becomes, what do we do with this additional money?

Some of it could be used to help support existing programs that are under extreme budget pressure, such as K-12 and higher education, but the primary focus should be on providing tax relief in areas that would help support economic development and enable working families to keep more of their hard-earned money.

For example, true tax reform could generate enough additional revenue to enable us to significantly reduce or eliminate the corporate income tax, or the BPOL tax, which unfairly taxes businesses on their gross receipts, as opposed to their net profits. These types of tax cuts would make Virginia more competitive and enable businesses to invest in their capital facilities, hire more workers or boost worker pay.

In addition, these additional dollars could be used to reduce individual income tax rates or the state sales tax, enabling working families to keep more of their paycheck. Families would likely spend most of these additional dollars on things they need, which would in turn provide an additional boost to Virginia’s economy, especially at the retail level.

The idea of tax reform is not new. It has been tried many times before. In the early 1990s, former Gov. L. Douglas Wilder, a Democrat, appointed a commission to study the issue of tax reform. In the late 1990s, former Gov. James Gilmore, a Republican, did the same. The recommendations of the Wilder Commission and the Gilmore Commission are still on file and could be used as a basis for a new focus on tax reform.

Unfortunately, in the past our elected officials have failed to muster the courage and build the consensus that is necessary to make true tax reform work.

If existing tax exemptions and credits are eliminated, or reduced, some businesses or individuals may pay higher taxes, while others may pay lower taxes. In other words, true tax reform can produce “winners” and “losers.” That makes it a difficult issue to address.

However, true tax reform would unquestionably be good for our state, both now and in the future, and better position us for future economic growth and budgetary stability.

In his book “Profiles in Courage,” former President John F. Kennedy talked about the importance of elected officials who are willing to defy the opinions of their party and constituents and do what is right for our country.

Unfortunately, there aren’t many political leaders like that today, and tackling a complex issue like tax reform would require our elected officials to become profiles in courage. This is an issue that needs to be addressed, and the time has come to do so.

BILL BOLLING served as lieutenant governor of Virginia from 2006 to 2014. He is chairman of the Virginia Mainstream Project, which is dedicated to promoting a more mainstream approach to politics and governing in Virginia. He can be reached at bill.bolling@billbolling.com.