The Senate Finance Committee voted today to impose a $96.2 million tax increase on state corporations and utilities to recover some of the $220.8 million the state is expected to lose because of Reagan administration federal tax cuts.
Business lobbyists immediately complained that the committee's action would undermine Reagan's policies and endanger the state's economic stability. But committee members who passed the measure 13 to 2 insisted there was nothing improper in recovering much of the $112 million that Reagan tax breaks to businesses will cost Virginia over the next two years. Virginia is also expected to lose about $108 million because of Reagan tax cuts to individuals
"They Reagan and Congress didn't consult us. They did it without ever knowing what the impact on us would be," said Senate Majority Leader Hunter B. Andrews (D-Hampton), one of the bill's sponsors. "All this bill attempts to do is to retain certain income that we would otherwise have received."
Though the panel's action might seem surprising for Virginia, a state whose government has long boasted a friendly relationship with business, it dramatizes what legislators are calling the state's most severe budget crisis in decades.
The Reagan budget cuts, the recession and changes in the federal tax structure are expected to slash more than $500 million from the state budget over the next two years.
Even business lobbyists conceded they never expected to defeat the bill. "I'll put it this way: If you told me I had to go up against a linebacker for the San Francisco 49ers, I wouldn't even try," said F.W. Palmore Jr., lobbyist for the Chesapeake & Potomac Telephone Company.
What apparently sealed the measure's success was a coalition of influential senators who united to push it through. The group included nine Democratic members of the powerful Senate Finance Committee headed by the committee's chairman, Sen. Edward E. Willey (D-Richmond).
That coalition also is expected to move the measure quickly through the full Senate, despite the lack of a specific endorsement from Democratic Gov. Charles S. Robb, who has called for higher taxes. Robb had said he preferred that the legislators initiate tax measures before he endorsed any specific plan.
Its future is less certain in the House of Delegates, where all 100 seats are up for election this year. Many legislators are now saying that some form of tax increase will probably be necessary to balance the state's $13.1 billion two-year budget, but are now divided among several different tax measures.
"I'm not sure yet what we'll do, but I think we've got to do something," said Del. Archibald A. Campbell (D-Wythe), chairman of the House Finance Committee.
Under the bill approved by the Senate committee today, corporations that do more than $100,000 worth of business in Virginia each year will see their corporate income tax rise from the current 6 percent to 7 percent for the next four years. Smaller companies will be taxed at a rate of 6.5 percent. By comparison, Maryland taxes all corporate income at 7 percent.
The measure also would freeze public utility gross receipt taxes at 2.3 percent for the next four years, rather than allowing utilities to take advantage of a scheduled tax reduction to 2 percent.
Included in the tax measure were sections to disallow a Reagan tax break for married couples at a state savings of $33.6 million, to overhaul the state's capital tax structure and to repeal the state's business license taxes. Virginia already has a tax break for married couples. The business license taxes, including one on the owners of covered bridges, have frequently been criticized as archaic and confusing. Their repeal would cost the state $7.7 million over the next two years.
Willey told the committee that Reagan tax cuts will cost the state millions, because the state's corporate income tax structure relies heavily on the federal structure. About $112.1 million of the expected $220.8 million tax-cut loss would be through new accelerated depreciation schedules for businesses with the rest of the loss attributed to changes in federal estate taxes, all-savers certificates, elimination of the marriage tax penalty and other tax breaks geared toward individual taxpayers.
"I certainly don't want to do anything to hurt industry relocating in Virginia," Willey said. "I think it's a good bill, a fair bill, and I don't think we're making an unfair imposition on industry or anyone else."
Zachariah C. Dameron Jr., president of the Virginia Manufacturers Association, argued that rising corporate taxes have made the state less desirable to business in recent years. "The imposition of additional corporate income tax will delay economic recovery and further jeopardize the prosperity of our citizens," he said.