Virginia Watchdog / Corporate tax preference policy to haunt Legislature
by Katie Watson
A Virginia tea party chairman, a progressive Virginia legislator and a tax policy expert can see eye-to-eye on at least one thing — Virginia’s wild love affair with tax preferences, particularly tax credits, has to end.
With the 2013 General Assembly session kicking off as soon as life returns to some version of normalcy after the general election and holiday seasons, it’s time to stop playing favorites and spending through the tax code, according to these unlikely philosophical allies.
So far, legislators have filed a handful of tax-preference-related bills for the session starting Jan. 9, including one that would dole out tax credits to small businesses hiring Virginia college grads.
“You can come out with tax credits with all these great intentions, but the fundamental fact is, they distort the playing field,” said Mark Daugherty, chairman of the Virginia Federation of Tea Party Patriots.
It’s “sweetheart deals” and credits for things like job creation and research that creates an “uneven footing,” said Scott Drenkard, economist with the nonpartisan Washington, D.C.-based Tax Foundation.
“Those are just spending through the tax code,” Drenkard told Watchdog.org.
Delegate Scott Surovell, D-Fairfax, who has criticized what he calls corporate welfare in Virginia, spoke along similar lines.
“It doesn’t make any difference in terms of budget whether you’re writing a check or taking a tax credit,” said Surovell. “The effect on the budget is the same. The problem with a tax credit is that the public has no idea where the money is going.”
The Legislature has been on a “tax-credit enacting spree” during the past five years, said Surovell, mentioning the 2012 bee-hive tax credit legislation that now grants beekeepers $200 per new beehive created.
And with Virginia’s good-for-business reputation, there’s no need to “perpetuate” all these credits, he argued.
A November 2011 study by the investigative arm of the General Assembly — the Joint Legislative Audit and Review Commission — raised Surovell’s concerns. In 2008, the state doled out nearly as much in tax preferences — $12.5 billion — as it reaped in total revenue —$14.3 billion — with no “consistent process” to measure effectiveness.
The unsettling JLARC report sparked a 2012 bill commissioning the Joint Legislative Subcommittee to Evaluate Tax Preferences, a group of 10 Republicans and four Democrats senators and delegates. But without enough members present to reach a quorum in the subcommittee’s first meeting on Oct. 2, there’s no working plan or list of objectives yet.
Subcommittee member Sen. Jeffrey McWaters, R-Virginia Beach, said he plans to sit down with business owners and retired chief executives to see just how important the state’s tax incentives were in their decision-making process.
“If you find out it’s number one or two then you need to make sure you’re really paying attention to the limited opportunity — and I want to stress that — the limited opportunity you have to allow tax code to drive investment into Virginia jobs,” said McWaters.
“You want to be really thoughtful about that, because we don’t have an unlimited opportunity to do that. Because on the flip side of that, we have to be paying for schools, roads, our infrastructure and social programs to make Virginia also a great state.”
So, what’s a Legislature that hands out tax preferences like candy to do?
Daugherty and Drenkard said the state needs a simpler tax code with fewer deductions and a broader revenue base.
Surovell suggested a three-pronged approach.
First off, lawmakers needs to make public the name of every person claiming a tax credit, aside from the Virginia earned income tax credit that has been in place for years, Surovell said. Next, every tax credit should be subject to re-enactment every two years. And finally, tax credits need set objectives and be reviewed on a regular basis, he said.
“Anytime the government is putting money in the hands of private parties like this for what are usually economic development reasons … we ought to be looking at whether or not these kinds of appropriations are creating good, long-term economic activity and not sort of just a short-term flash in the pan,” Surovell said.
by Katie Watson
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