Senior Republican lawmakers are pushing to end Virginia's estate tax, but Democratic Gov. Mark R. Warner opposed a repeal today, saying state government needed the tax revenue to help close its serious budget shortfall.
"While we're making these dramatic cuts in state services, to take additional revenue out of our revenue stream right now may not make sense," Warner told reporters at the state Capitol.
Warner stopped short of saying he would veto an estate tax repeal if the GOP-led General Assembly approves it. But he used unusually strong language in denouncing what he called the hypocrisy of Republicans who have complained about budget cuts he ordered and now want to end a tax that generates about $120 million annually for the state treasury.
"You can't continue to talk about taking away more revenue and in the same breath complain about closing DMV offices -- it just doesn't add up," said Warner, who has presided over roughly $5 billion in budget cuts since assuming office in January.
A group of influential Republican senators and delegates has joined forces with a coalition of 39 trade associations and business groups to push for a repeal that would apply to the estates of individuals who die after Jan. 1, 2004, when lawmakers hope the economy will be rebounding.
Estate taxes are often paid by family members on a deceased parent's financial holdings, a one-time but considerable expense for the wealthiest families in the country. Virginia and the federal government tax estates valued at $1 million or more; the maximum marginal rate of the Virginia tax is 16 percent.
"Virtually every state has a budget shortfall comparable to or worse than Virginia's, yet most are repealing their state death taxes," said Senate floor leader Thomas K. Norment Jr. (R-James City), a repeal co-sponsor. "That shows there is a broad nationwide consensus that death taxes are unfair and harmful to economic growth."
Sen. Charles J. Colgan (Prince William), the Senate's senior Democrat, said he favors the estate tax repeal, but only if it starts well after the current economic slump is over. "We can't do it this year," Colgan said. "We can't afford it."
The disagreement between Warner and majority Republicans over the estate tax repeal could portend rocky relations during the 2003 General Assembly session, which will be contentious enough as the two sides hammer out more than $1 billion in cuts to finish balancing the $50 billion two-year budget.
As Republican lawmakers signaled their intent to pursue a significant tax cut during the 2003 legislative election season, Warner sharpened his own rhetoric against GOP leaders who had been his allies in reducing the budget this year. Speaking to reporters after a ceremony honoring two dozen of the state's best teachers and principals, including several from Northern Virginia, Warner said, "It's politically popular to be opposed to any tax, but at some point we've got a responsibility to the people, to say there are ramifications.
"You can't keep cutting off your revenues and at the same time continue to say that you're going to be able to have world-class colleges and universities, or that you're going to be able to celebrate the kind of successes that we just celebrated here with these teachers," Warner said.
"The hypocrisy of this process -- I mean, I think Virginians are smarter than this," Warner said.
The Virginia Organizing Project, a statewide citizens group, protested an estate tax repeal as part of a plan it issued today to change tax brackets and rates and thus reduce taxes on the poor. The group also proposes eliminating the sales tax on food, adding new taxes on services and increasing the corporate income tax.
David North, a semi-retired Arlington resident, said he and his wife pay $520 in state tax on an adjusted gross income of $113,472, because of a range of deductions and exemptions.
"Repealing the estate tax would be foolish and shortsighted," said North, who estimated the value of his estate at $1 million. "It only affects the very wealthy, who are otherwise largely undertaxed."