A move to put Virginia in line with Reagan administration tax policies by indexing the state's income tax for inflation foundered in the House of Delegates today amid Democratic denunciations of the president's program.
A package of bills, sponsored by Del. George Jones (R-Chesterfield) sought to prevent the state from reaping tax revenues due to inflation by annual adjustments to the state's tax brackets--including personal exemptions and standard deductions-- according to increases in the consumer price index.
Similar proposals were a central component of the Reagan tax bill passed by the Congress last summer. But during a frequently partisan 40-minute debate, Democrats charged that the Jones package would "wipe out" 10 percent of the state's tax base and linkened the proposals to what they described as Reagan's discredited economic program.
"This is what Vice President Bush called during the election campaign 'voodoo economics,' " said Del. David Brickley (D-Prince William). "It's completely irresponsible. The federal government has been able to get around it because they're able to print money, but Virginia doesn't have that luxury."
The impetus for Jones' package had first come from a legislative study commission in 1979 that advocated indexing. It concluded that inflation had resulted in "automatic unlegislated tax increases" for taxpayers of as much as 17 percent a year.
State tax officials opposed Jones' package, estimating that his proposal to index tax brackets alone would cost the state $361 million in revenue over a three-year period beginning in 1986 when it would take effect. His bills to index personal exemptions and the standard $2,000 deduction would cost another $210 million over the three-year period, the officials estimated.
During the debate, Jones argued that his proposals would have reduced the inflation-caused revenue increases that the state should not be entitled to--especially because the legislature lacked the courage to raise tax rates. He said the burden of the inflation-driven tax increases falls unjustly on lower-income residents who tend to claim the state's static $2,000 standard deduction rather than itemize actual expenses, which tend to rise with inflation.
"I honestly believe there isn't a single member of the General Assembly who uses the standard deduction," Jones said. "When you itemize you enjoy the ability to benefit from inflation. Those people who should bare most of the cost are hit the least."
The bills to index deductions and exemptions were narrowly defeated by votes of 42 to 51 and 46 to 47 respectively. "I'm sure the Republicans will use this to campaign against Democrats in the fall," said Del. V. Thomas Forehand (D-Chesapeake). "But we can't afford it."