Tax Giveaway in Virginia

Sunday, June 25, 2006

TWENTY STATES and the District of Columbia tax the estates of well-to-do residents upon their deaths -- generally those valued at $1 million or more. In Virginia, the so-called death tax is even less onerous; it kicks in for estates worth at least $2 million, which seems a generous-enough exemption for the affluent.

But that's not sufficient for the governor or most Virginia lawmakers. They are poised to scrap the estate tax altogether and forfeit the $140 million it yields annually. That may not sound like a crushing sum in the context of a $72 billion biennial budget. But given the legislature's failure to find a long-term funding fix for the state's snarled roads and highways, it is odd that lawmakers would surrender that pot of money for the benefit of the state's richest individuals and families.

Lawmakers in Richmond agreed to scrap the estate tax during eleventh-hour bargaining over a budget last weekend. Although details of the legislation remain unresolved, Gov. Timothy M. Kaine favors the measure in principle. Granted, their reasons are different. The lawmakers, mostly Republicans, tend to support the measure out of a general antipathy toward all taxes; Mr. Kaine, a Democrat, is worried mainly that retaining the estate tax puts Virginia at a competitive disadvantage vis-a-vis other states.

The governor's rationale may seem plausible, but we are not aware of any exodus of Virginia millionaires seeking a safe haven in one of the 30 states with no estate tax. Even with this relatively modest levy -- rates start at 10 percent on qualifying estates, according to Americans for Tax Reform, which tracks state-by-state data -- Virginia remains a generally low-tax state that attracts and retains wealthy residents, particularly in Northern Virginia.

It may soften the fiscal blow somewhat that the repeal of Virginia's estate tax is legislatively coupled with a measure to limit tax credits for land owners who place their property under conservation easements, thereby restricting development and preserving open space indefinitely. If enacted, that cap should save the state some money on a program that has cost the treasury nearly $400 million since it was adopted in 2000. The program has usefully preserved some sensitive land but also has provided a windfall to some wealthy landowners who had no intention of selling their property for development anyway. But scrapping the estate tax -- the single most progressive tax levied by government -- sends the wrong signal at the wrong time. It sacrifices fairness for the many on the altar of special favors for the few.

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