Governor Proposes “Local Income Tax”

I’m down in Richmond this morning and just heard Governor Kaine give his annual budget address to the House and Senate “money committees,” i.e. the Senate Finance and House Appropriations members.

The speech was about 30 minutes long.  As in past years, it began with a recitation of Virginia’s lofty standing and strong fiscal reputation.  That was the preamble.

The Governor then followed up with a number of proposals regarding cuts in education, Medicaid and other state services which would be used to bridge the $4B budget gap which looms for 2010-2012.   (one truly awful idea — “freezing the Local Composite Index” — deserves a separate post because of its negative impact for our school system). 

The bombshell came at the end. 

Right now the state allocates $950 million in car tax relief based upon the 1998 law.   There’s a lot of history behind that law and I won’t repeat it here.  Suffice to say that 22% of that money goes back to Fairfax County families, thus making it the only state spending program which reimburses Fairfax at a level approaching its contribution to the state budget.

Unlike other tax credits which favor certain individuals or industries, the “car tax relief” directly benefits middle-class families who own property and pay taxes.  There is no lobbyist to clamor for it.  It exists because it benefits voters.  For example, each family I represent saves roughly $500 annually under this program.

To balance the budget, the Governor today proposed ending the $950M program.  It’s a bad choice but not entirely unexpected …

Howevever, there was a surprise in store.  The Governor next proposed eliminating the car tax at the local level completely and  replacing it with a 1% local income tax to be authorized by the General Assembly.  This would be a new tax assessed by localities in addition to current income taxes.

As a practical matter, I don’t usually commit myself in December to a vote that will happen in March.  However, I will not support an income tax increase on working families.  Period.

What is most disappointing is that this administration in 2006 went along with repealing the estate tax (called the “death tax” by Republicans and Democrats pretending to be Republicans) which means that inherited wealth in Virginia is tax free.  

After this legal change (which was preceded by some noteworthy six-figure campaign donations), you can inherit sums above $100 million and not pay a dime in taxes.  Yet the Governor won’t now touch this tax break.  Nor will the Assembly.   

Meanwhile, working people are supposed to pay more?

Hell no.  Not for this Democrat.

I am heading back home in a couple hours.  This process is playing out over the next few months.  We’ll see what happens.

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