Why do I pay only $474 in Virginia income tax?

By David S. North
Sunday, April 11, 2010

As tax day approaches, many Virginians stare at their return, outraged over the percentage of their income that goes to taxes. Their concerns are legitimate when you consider that many older, affluent Virginians like myself pay far less than their fair share.

I am a different kind of outraged taxpayer. I am an 81-year-old Arlington resident who has just completed his Virginia tax return and finds it unfair that younger Virginians pay eight times as much as I do.

As it cuts back drastically on services, Virginia is overlooking the foolishly generous income tax break it gives its affluent elderly. My wife and I had a federal adjusted gross income of $92,000, but our state income tax bill came to only $474, about one-half of 1 percent, compared with the $7,529 we paid to the feds.

With a total income of almost $100,000 a year, we pay all of $1.30 a day in state income taxes. But a 40-year-old couple with my income would pay the state $3,716 in taxes, about eight times what my wife and I pay.

I am neither an economist nor a tax-policy specialist, but I do know something about how tax systems work. U.S. taxes are much lower than those in other modern democracies, and Virginia's taxes are lower than those in most states. Further, Virginia's tax system, with a marginal tax of only 5.75 percent on income over $17,000, and no tax on estates, is rigged for the rich and against the middle class.

Why does this happen? Virginia gives two significant tax breaks to older residents that bring my state income tax to such a remarkably low number. The first is that Virginia does not tax Social Security payments. My wife and I have Social Security income that amounted to $32,396, and we paid only federal taxes on that amount. The IRS handles Social Security income much more sensibly than Virginia. Those with low incomes are not taxed at all. Those with higher incomes such as ours pay tax on 85 percent of benefits, and there is a sliding scale for those in between.

On top of that, Virginia provides an extra deduction of $12,000 per person for people over 65, amounting to $24,000 for my household. Taken together, this means that we have $56,396 in income that the feds tax but Virginia does not. The Virginia treasury does not get much from us.

No wonder the state is broke. It would be much more sensible if Virginia gave the affluent elderly their choice of the Social Security or the age-deduction tax break, but not both. Or better yet, start taxing all federally taxed Social Security benefits. Once we start taxing the affluent elderly at a sensible rate, maybe we can reopen some schools, and make our state deficit problems more manageable.

The trouble is that the decision-makers in Richmond, particularly the Republicans, coddle the well-to-do and threaten to starve state services to levels seen only in the Third World.

The writer was chairman of the Arlington County board of tax appeals from 1994 to 2003, and runs the volunteer income-tax assistance program for graduate students at the University of Maryland.

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