Bipartisan House of Delegate Vote to Pass Death Tax Repeal

Tax foes rally at Capitol
As 100 activists criticize the proposed higher levies, some executives endorse increases

BY MICHAEL HARDY AND JEFF E. SCHAPIRO
TIMES-DISPATCH STAFF WRITERS
Wednesday, February 11, 2004

Anti-tax activists yesterday depicted proposed tax increases as the whim of the powerful rich who view working Virginians as ignorant about money.

"They think you're smart enough to know how to earn it, but not smart enough to know how to spend it," said John Taylor of the Virginia Institute of Public Policy, labeling the debate over higher taxes "The Wealthy Know Best."

Taylor was among an estimated 100 foes of higher taxes who rallied on Capitol Square one day after some 600 supporters of a tax increase crowded the same spot to press the General Assembly to pump billions into schools, roads and other programs.

The thinly attended anti-tax demonstration came as the target of Taylor's broadside - prominent and prosperous business leaders from both political parties - appeared before the Senate Finance Committee to endorse tax-increase packages that would provide fresh cash for a variety of services.

John O. "Dubby" Wynne of Virginia Beach, a retired media executive, told the committee that the legislature cannot avoid new investments any longer because the "path of inaction will lead to mediocrity and deterioration."

Horace Fralin, a Roanoke nursing-home operator, said additional spending cuts - the budget has been lopped by $6 billion since January 2002 - would harm services that make Virginia an attractive place to live and invest.

"These are not frills," he said. "These are things that create the quality of life to which business looks."

They and others warned the panel that to continue the Band-Aid approach to managing the state's finances could cost Virginia its triple-A credit rating, the highest possible, and drive up the price to taxpayers of bond financing.

The state has been threatened with a downgrade by Moody's Investors Services, one of the big-three rating agencies, because of depleted cash reserves and uncertainty of how to pay for the Republican-authored car-tax rollback.

The finance committee, headed by Sen. John H. Chichester, R-Stafford, could approve today legislation that would generate $500 million to $1.25 billion a year in additional revenue through higher sales, income, fuel and tobacco taxes.

The Virginia Senate, controlled by moderate Republicans, is allied with Gov. Mark R. Warner, a Democrat, in favoring new taxes to strengthen services as well as eliminate predicted budget shortfalls over the next decade.

However, the House of Delegates, with its conservative Republican majority, is resisting higher taxes. Yesterday, the House affirmed its position, endorsing legislation eliminating the tax imposed on the estates of the wealthiest Virginians.

At the anti-tax rally, supporters carried signs that read, "No New Taxes - Remove John ChiTaxer" and "Mark Warner Lied," a reference to Warner's promise during the 2001 campaign not to seek higher taxes.

Appealing to resentment of wealthy interests, Taylor's attack spotlighted the anti-tax populism that has fueled the rapid ascendancy of the Virginia Republican Party and strained relations between the GOP and its traditional allies in the business community.

However, opponents of higher taxes said it was Republican lawmakers, such as Chichester, who would weaken the party by betraying its anti-tax orthodoxy.

"These folks are killing the Republican Party," said Paul C. Jost, president of the Club for Growth, who unsuccessfully challenged a Chichester ally, Senate Republican Floor Leader Thomas K. Norment Jr. of James City, in a primary last June.

Meantime, the House overwhelmingly approved a measure erasing, beginning in 2006, what is derided by opponents as the "death tax."

Voting 69-29, the House postponed elimination of the estate tax until the 2006-08 spending cycle to guarantee that the $100 million-a-year price for the legislation would not come out of the pending budget, which is short $1 billion.

The House needs all the cash it can find because its proposed budget will be free of general tax increases - for example, on retail sales - as sought by Warner to help balance the state's two-year $59-billion spending plan. The current two-year budget is $52 billion.

Yesterday, the governor's spokeswoman, Ellen Qualls, said the House measure - now headed to the Senate - does not meet Warner's preferences.

Repeal of the estate tax, said Qualls, should be done within the context of an overhaul of the tax system and take effect in the next fiscal year, which begins July 1.

"This bill appears to be putting it off at this point," she said.

Warner would only abolish the tax for estates valued up to $10 million and for family-owed businesses and farms. It would cost about $114 million over the next two years.

Last year, Warner vetoed a similar measure. His veto was upheld in the Senate.

Chichester's package of tax increases and cuts also includes elimination of the estate tax.

Republicans argued that more than 30 other states have abolished the estate tax or are doing so.

The tax is an assault on the "American dream," said Del. Robert F. McDonnell, R-Virginia Beach, a sponsor of the measure and candidate for attorney general in 2005.

Survivors without assets easily redeemed for cash either have to sell property or take out loans to pay the Virginia tax, he said.

Democrats made up the core of the opposition to repealing the tax. Abolition of the estate tax would "mean the twelve hundred multimillionaires won't pay tax on capital gains," said Del. Vivian E. Watts, D-Fairfax.

Like other opponents, she said the money would be better spent on education, transportation and health care.


Contact Michael Hardy at (804) 649-6810 or mhardy@timesdispatch.com
Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com

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