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Warner Asks For Tax Overhaul

Va. Gov. Mark Warner came to McLean last week to explain how his proposal for changing the tax code will “keep the wheels on” the state’s fiscal wagon, meeting with a friendly crowd in the basement of the Dolley Madison Library.

Although the McLean Citizens Association sponsored the event, e-mails went to members of the Fairfax County Democratic Committee with little media notice to the public.

Warner had been scheduled to speak at 9:30 a.m. but entered the crowded basement room at 9:55 a.m. Fairfax County Board of Supervisors Chairman Gerry Connolly and former Dranesville Supervisor Lilla Richards, both Democrats, were in the front row.

In McLean, he entered the home district of Vince Callahan (R-34th), chairman of the House of Delegates Appropriations Committee.

“Vince Callahan understands the problem,” Warner said. “I think he is working with his colleagues in good faith to try to resolve it.”

Warner explained how an income tax increase on people who earn more than $100,000 and an added penny to the sales tax would be offset by decreases in taxes on food and cars. He segued into an audience participation exercise.

Warner’s Web site has an interactive feature that allows taxpayers to check the effect the package would have on them.

The governor asked the audience to call out the features of a hypothetical family with an annual income of $150,000, three children and three cars. Such a couple would see their state income increase from a rate of 5.75 percent to 6.25 percent, under Warner’s plan.

That would be offset somewhat by reductions in taxes on cars and food. The sales tax would increase by one penny.

Warner’s biggest laugh of the day came when he asked the audience to call out the ages of the principal wage earners; the husband was born in 1948, according to a female voice in the audience, and the wife was born in 1972.

“That was the consensus [age] of those in Virginia Beach,” he said amidst a roar of laughter.

WARNER’S INTERACTIVE CHART showed that such a high-income family would pay an increase of $12, under his plan.

“Yes, I know I’m in McLean, where chances are a few folks make more than $100,000,” Warner said.

But as he has presented it around the state, Warner said, “I’ve heard 'no,' but I haven’t heard a single solution” from critics.

His plan would complete phaseout of the car tax, now frozen at 70 percent of full elimination.

By 2008, the first $20,000 of value on cars would not be taxed. Warner said residents of Northern Virginia presently yield 40 percent of the benefit from reduced car taxes, while they are 28 percent of the population.

Bill Frazer of McLean countered by saying such residents often choose to drive more expensive cars. “We get the most relief, but we put in the most money,” he said.

Both the Virginia Chamber of Commerce and the AARP have endorsed Warner’s plan, which would curtail a current deduction for some people more than 62 years of age with “an income adjustment” for those with higher incomes.

“If you look at demographic trends with a graying population,” Warner said, “[the current policy] will ultimately break the bank in Virginia.”

“Where this will help the state is five, six, seven years from now.”

The state chamber “unanimously, unanimously, endorsed our proposal, and [Va. Sen. John] Chichester’s,” Warner said.

He joked about the tendency of lawmakers to use euphemisms to describe tax increases.

“Using Richmond parlance, we’re going to lower the user fee on food,” he said.

ALTHOUGH VIRGINIA COLLEGES have raised tuition by 20 percent, Warner said, Virginia still spends less than surrounding states, paying $9,000 to educate each in-state resident at a Virginia college. Maryland spends $14,000, he said, and North Carolina spends $23,000.

In Virginia, “The out-of-state kids subsidize the in-state kids,” Warner said. “Our children disproportionately go to Virginia colleges.”

His tax plan would close a loophole that allows “big box” retailers to form holding companies in Delaware that claim all the profit from their Virginia stores as expenses.

“There are lots of legal ways to avoid paying taxes,” Warner said.

Without a change, projections show that revenue fails to cover state expenses from 2005 to 2010, the six-year window covered by his plan.

“We are at the tipping point in Virginia if we fail to invest” in its institutions, Warner said.

Warner said Virginia’s AAA bond rating is “the Good Housekeeping seal of approval that we are well-managed. The worst tax increase would be losing our AAA bond rating.”

The state is presently on Moody’s credit watch, he said.

BOB THOMPSON, an attorney for Thiemann, Aitken and Vohra in Old Town Alexandria, described himself as “one of 38,000 lawyers in the Washington area” and a “naif” on local issues. He said he dropped by the library after he heard there was a traffic delay on the George Washington Parkway.

“I had never met the governor,” Thompson said. “I was not sure what I was going to find.

“I was really glad I stayed [to hear him]. He reminds me a little of [North Carolina Sen. John] Edwards in that he is so facile, so glib, and so articulate on his feet. I was impressed with his ability to hone right in on a hostile questioner and win that person over. I really believe the guy is courageous,” Thompson said.

“I really believe Virginia has an opportunity, while other states are failing to step up to the plate, to stay in a leadership position. I think there is a constituency for the kind of thoughtful, across-the-board tax increase proposals that he is doing.

“Here is a politician willing to take a chance on raising taxes,” Thompson said.

“My concern is how do you sell this anywhere in America, particularly in a state that is fairly conservative, to people who don’t read the newspapers? Who don’t want to hear the words ‘tax increase’ ever?”

Thompson suggested that Warner ask television stations to donate five minutes to deliver his point and prove his contention that for 65 percent of the population, his program will reduce the taxes they pay.

“The people of Virginia have to understand that to stay in the vanguard of progressive states, where the most talented people want to live and work, and businesses to locate, you have to convince the mass of voters who don’t pay a lot of attention to politics how to keep Virginia’s fiscal affairs on a solid basis,” Thompson said.

“THIS IS A TAX INCREASE,” said Jim Turner of McLean. In Virginia, he said, “Our spending exceeds our taxable income.”

“You have a spending model that is going [to increase] four, to five, to six percent a year.”

“The first choice here was to cut, and we have cut,” Warner said. “The spending model is increasing. Our population, the age of our population, the number of students in school who want to go to college, are rising more than four, to five, to six percent a year."

To “ratchet down the operational side in terms of increased spending,” Warner said, “I would pose the question: Where would you make the cuts?”

“Your spending cuts are admirable,” Turner said. “Businesses could not cut prices, and yet most will have their highest profit levels ever this year. They cut spending.”

“We won’t return state government spending to the levels it was before I took office,” Warner said. “I worry that we won’t have a next governor with the business perspective here. Making spending cuts is not easy.”

Bill Frazer attacked Warner’s plan on the basis of state formulas for distributing revenue back to communities, saying Northern Virginia gets shortchanged.

“I’m not going to stand here and say Northern Virginia doesn’t pay more than its fair share,” Warner said. “It does.”

But in rural Virginia, Warner said, “they complain about all their tax dollars going to Fairfax [County] to pay for all your fancy cars."

“There is no one who doesn’t think they are getting the short end of the stick in Virginia,” Warner said. “Everybody needs to pay their fair share.”

ROB JACKSON ASKED about development impact fees. “Our new [Board of Supervisors] chairman is being killed because of development,” Jackson said. “That piece is not being addressed."

“How much are you going to take on?” Warner answered. “First you go fix the general fund. Then you’ve got a pie to split.

“It’s not the Virginia way to borrow [money] to pay your bills, and it’s not going to happen on my watch.

“I don’t want my three daughters growing up in that Virginia.”

Adrienne Whyte asked why he thought the same voters who rejected a half-cent sales tax referendum for transportation in 2002 would accept a proposal to increase it one penny.

Warner’s new proposal is presented as House and Senate Bill 30, to be accepted or rejected during the current session of the General Assembly.