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Skepticism Greets Two Va. Tax Plans

By Spencer S. Hsu
Washington Post Staff Writer
Thursday, July 24, 1997; Page D01

RICHMOND, July 23 — Democrat Donald S. Beyer Jr.'s plan to give families tax credits to offset Virginia's personal property tax would strain the next state budget and might have to be scaled back if state revenue falls below projections, according to some budget analysts in his own party.

The state lieutenant governor has said his $200-million-a-year proposal would be paid for by growth in state revenue. But several analysts said the price tag would squeeze out other state spending priorities in the next two years, including some education goals that Beyer has promoted.

Beyer's proposal for tax credits of as much as $250 per family ultimately would cost only one-third as much as the tax cut plan offered by James S. Gilmore III, his Republican rival in the governor's race. But in the first year, Beyer's plan would be twice as expensive as Gilmore's, because Gilmore's proposal to virtually eliminate the personal property tax on cars would be phased in over five years.

"I am not a tremendously big fan of either plan," said House Majority Leader C. Richard Cranwell (D-Vinton), who nonetheless prefers Beyer's.

Cranwell said Beyer's tax credit should be linked directly to state revenue growth. If revenue grew by 5.5 percent next year, for example, families would get the $250 rebates. If the growth rate were lower, they would get less than that, Cranwell said. He also said he wasn't sure the plan would cost no more than $200 million a year.

"I would like to look at what the actual cost is the first year to see what the numbers are," Cranwell said. "If you do it, I think you can structure it to make sure that Don Beyer will keep his promise."

Beyer's plan, which would cost $1 billion over five years, is targeted at low- and middle-income families. A married couple making as much as $75,000 a year could take a credit of up to $250 for the tax paid on one or two vehicles. An individual making up to $40,000 could take a credit of as much as $150 for the tax paid on one vehicle.

Gilmore would wipe out the tax on the first $20,000 of assessed value for all personal vehicles. The former state attorney general says his plan would cost $1.6 billion over five years. Gilmore, like Beyer, has said that increased state revenue from a growing economy would cover the cost.

Local government officials prefer Beyer's tax credit, because under Gilmore's plan they would have to rely on the General Assembly to reimburse them for the lost tax revenue. They also say that the true five-year cost of Gilmore's tax cuts is closer to $2.9 billion because he did not consider the effect of inflation on personal property tax assessments.

But funding Beyer's proposal in the next state budget would be difficult, several Democrats said.

A Senate Finance Committee official said last week that although Virginia expects a $225 million budget surplus for the fiscal year that ended June 30, the state budget must swell by $1.4 billion from 1998 to 2000 just to keep up with inflation and population growth in areas such as education, prison-building and Medicaid.

State economic forecasters say that even with robust economic growth, it would be difficult for the state to close that gap — and that does not include the new spending programs that Beyer and Gilmore have promised. Beyer has proposed $1.5 billion in education, police and economic development initiatives over the next five years, and Gilmore plans $641 million in new education and police programs over that time.

Former Senate majority leader Hunter B. Andrews (D-Hampton), who was Senate Finance Committee chairman for eight years, said that Beyer, like Gilmore, would be unable to launch his tax relief plan without painful spending cuts "unless he finds buckets of money."

Stephen S. Fuller, professor of public policy at George Mason University, agreed. "There is not enough money in surplus revenue to increase services and decrease taxes," he said, echoing the view of several economists. "It's election time. The Beyer proposal is actually a little more efficient way of providing the tax reduction, but still I think it's shortsighted."

Each campaign insists that its plan is affordable while the other's is irresponsible.

"Don Beyer will leave the state in fiscally sound standing, while Jim Gilmore's legacy to Virginia after four years will be a billion-dollar surprise," said Page Boinest, Beyer's spokeswoman.

Gilmore heartily disagreed, calling his plan "real tax relief" and Beyer's proposal a quick-fix "tax scam." Given constraints on next year's budget, Beyer's plan "is either based on a new liberal math that's not yet been invented, or he'll have to increase other taxes to pay for it," Gilmore said.

The real issue is why both gubernatorial candidates have given tax cuts such a high priority, said Michael Amyx, a spokesman for the Virginia Municipal League.

"The question to ask is, `Is that money not better spent on K-12 education, higher education and transportation needs?' " Amyx said.

***

DUELING TAX CUT AND SPENDING PLANS

Democratic nominee Lt. Gov. Donald S. Beyer Jr. and Republican nominee James S. Gilmore III have proposed rival tax cut and spending plans in their campaigns for Virginia governor. Here is a rough breakdown of the cost of each program over five years, when both plans would be fully phased in, and the ongoing annual cost to the state, according to the best estimates available.

All figures are in millions of dollars.

BEYER PLAN XXXXXXXXXXXXXXX GILMORE PLAN

-->
5-year cost (1998-2002) Ongoing annual cost(2003 and beyond)
Personal property tax credit $1,000$200
Teacher pay raises 572 162
College scholarship and aid plan 411 131
Small business tax cut 150 30
Classroom computers 125 25
Nonprescription drug sales tax cut 100 20
Other proposals 174 46
Beyer total $2,532 $614
5-year cost (1998-2002) Ongoing annual cost(2003 and beyond)
Personal property tax credit *$1,620- 2,900 $620- 1,366
College scholarship plan 336 96
4,000 new teachers 280 80
More police and police retirement 25 13
Gilmore total $2,261- 3,541 $809- 1,555

NOTE: *Higher figure calculated by Virginia Municipal League and Virginia Association of Counties.

SOURCES: Donald S. Beyer Jr. and James S. Gilmore III campaigns for governor

© Copyright 1997 The Washington Post Company


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