Virginia governor proposes an income tax increase

By Anita Kumar and Rosalind s. Helderman
Washington Post Staff Writer
Saturday, December 19, 2009

RICHMOND -- Virginia's outgoing Democratic governor, Timothy M. Kaine, proposed Friday replacing the long-hated car tax with an income tax increase, a radical restructuring of the state's tax code that was immediately rejected by the governor-elect and other Republican leaders.

Kaine told legislators that the only way to avoid cuts deeper than the $2.3 billion he proposed Friday would be to raise taxes by $1.9 billion to make up for a potential $4.2 billion budget shortfall created by the state's ongoing financial crisis.

"More cuts to education, public safety, health care, state employees and other core services would be directly contrary to the current and future needs of the Commonwealth,'' Kaine said. "They would squander our leadership position and make it more difficult to achieve our goals as we climb out of the national recession."

But Republican leaders -- including Gov.-elect Robert F. McDonnell, who easily won after promising not to raise taxes, and House Speaker William J. Howell -- vowed to kill what would be Virginia's first income tax increase in nearly four decades.

"It is bad economic policy to increase taxes on Virginians, especially as they continue to struggle with the worst economy in generations,'' McDonnell said in a statement.

Kaine unveiled his final two-year $76.8-billion spending plan in a speech to a standing-room-only crowd at the General Assembly's financial committees, in an attempt to solidify his legacy before leaving office next month to begin working full time as chairman of the Democratic National Committee.

Eliminating the car tax would mean abolishing a personal property tax that is embedded in Virginia's constitution and dates to the colonial era, when it was applied to horses, as well as George Washington's snuff box. It would be a change to Virginia's tax code on the order of the adjustments advocated by Gov. Mark R. Warner (D) in 2004, which resulted in one of the most tumultuous legislative sessions in recent memory.

The state now pays its local governments $950 million each year for the costs of giving relief to car owners, a figure that removes some but not all of the burden from residents. Kaine derided the car tax reimbursement program as "a $950 million folly" and accused Republicans of protecting it only for the sake of political expedience. His proposal would allow local governments to phase out the car tax and phase in a 1 percent income tax increase over two years.

The increase would mean a hike in the income tax rate from 5.75 percent to 6.75 percent for those earning more than $17,000, 60 percent of taxpayers.

McDonnell and legislators will use Kaine's plan as a blueprint, but will make alterations based on their priorities and the changing economic forecast.

As has his been his practice for most of his term, Kaine did not try to sell his plan to legislators beforehand. Lawmakers expressed surprise Friday at his proposals, and few were enthusiastic.

Some members of his own party declined to express support for the plan but promised to examine it thoroughly, while members of the opposing party accused him of purposely leaving the new majority a mess as he departs. "It's a last-minute, political poke-the-legislature-in-the-eye proposal,'' House Majority Leader H. Morgan Griffith (R-Salem) said.

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