Tax Breaks Virginia's Poorest Can't Afford

By Chap Petersen
Sunday, February 8, 2009

Virginia is facing an unprecedented $3 billion deficit in its state budget. That deficit is likely to grow in the coming weeks as job layoffs and declining markets continue to drive down revenue.

The 2009 General Assembly is considering multiple proposals from Gov. Timothy M. Kaine to close this gap. These unhappy choices include slashing funds for public schools, eliminating road projects and laying off state employees.

We are not unique. Every state is hurting. What is unique is Richmond's refusal to reconsider special-interest tax breaks doled out in recent years, even as harsh cuts are impacting the youngest, the oldest and the poorest.

The most flagrant example of a Richmond-based tax preference is the 2006 estate tax repeal, which eliminates all state taxes on inherited wealth -- thereby reversing a state policy that had existed since 1927, when it was signed into law by Gov. Harry Byrd.

Nowadays a $10 million inheritance in Virginia is tax-free, even as working families continue to pay state taxes on their earned income. That recently enacted tax shelter for Virginia's wealthiest costs the state about $150 million in annual funds that we can never recover, even if the estate tax is restored in 2011 as currently planned.

The temporary windfall for a few has become doubly ironic in this budget year, with a proposal to reduce Medicare assistance to our elderly and disabled by $416 million in the coming fiscal year. (The federal stimulus bill has marked $250 million for Medicaid in Virginia, but that money is far from guaranteed.)

This Medicaid money flows from the state to the most vulnerable in our community: the poor, the elderly and those with disabilities. With the dollar-for-dollar match from the federal government, the state investment should be leveraged to help those on society's margin survive. Those dollars can also go to fully reimburse hospitals and nursing homes that care for this vulnerable population, so that they can continue this important service. But we don't do that.

Before this budget, Virginia ranked 48th of the 50 states in per capita Medicaid assistance. We annually left millions of dollars in federal aid "on the table." Now we're getting much worse.

In tandem with Del. Vivian E. Watts (D-Fairfax), I have proposed legislation to redress this wrong, close the budget gap and restore some equality to our tax system. Our bill would bring back the Virginia estate tax for estates over $5 million, with an exception for small businesses and farms. Those qualifying large estates would again pay the state tax at the pre-2006 rate. Ironically, this proposal is more generous to wealthy families than current federal law, which affects all estates valued at over $3.5 million.

The resulting $100 million in revenue from this bill would be dedicated to Medicaid assistance for the elderly, including in-home day care and nursing home assistance for the most fragile. This investment, doubled by the federal matching funds, would preserve the dignity of our parents and grandparents in the last years of their lives. It will also allow those nurses and doctors who care for our seniors to stay in business.

This level of care is the greatest gift we can give our seniors -- not a tax break that they will never even see.

-- Chap Petersen


The writer, a Democrat, is a Virginia state senator.

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