With state battling shortfalls, GOP proposes estate tax cut

Associated Press

RICHMOND, Va. (AP) - With the state struggling to cover nearly $6 billion in budget shortfalls over the past year, legislative Republicans on Tuesday proposed abolishing Virginia's estate tax, eventually cutting state revenue by $120 million.

Virginians for Death Tax Repeal and the General Assembly's top GOP leadership announced a concerted legislative push during the legislative session that opens next month to repeal the hated levy imposed on the estates of the newly deceased.

Republican Dels. Robert Tata and Robert F. McDonnell, both of Virginia Beach, and Sen. Thomas K. Norment, R-James City, will sponsor the bill to fully eliminate the tax by 2005. Eliminating the tax will not affect the current state budget, now nearly $1 billion out of balance, backers of the bill said.

"At first blush, it might seem crazy to be passing death tax repeal in our current fiscal situation. But when you look closer, you realize we would be crazy not to repeal this tax," Norment said in a statement issued by Virginians for Death Tax Repeal, a 39-member coalition of business trade groups and tax-cut advocates.

Gov. Mark R. Warner, forced in October to cut $858 million from the state's budget and looking to trim about as much from the austere budget he will present lawmakers Dec. 20, questioned the group's timing.

"This is the wrong time to be talking about more tax breaks when we are asking some of our neediest citizens to make enormous sacrifices," said press secretary Ellen Qualls.

"Since 1994, the state has enacted more than 60 tax cuts and exemptions and in the past year, we've had to take almost $6 billion out of the budget," she said.

Cuts Warner has already announced resulted in 1,837 state employee layoffs. Community mental health services were reduced. Hours were cut and offices were closed within the Department of Motor Vehicles, resulting in waits of several hours for some motorists.

"The timing is awkward, but my vision is that this is a long-term economic strategy rather than a short-term response to something," Norment said in a telephone interview.

The coalition was joined in announcing the effort to end the tax by the state's most powerful elected Republicans, including House Speaker-designate William J. Howell, Attorney General Jerry W. Kilgore, Senate Finance Committee Chairman John H. Chichester and state Sen. Walter A. Stosch.

Stosch said the state Taxation Department's estimate that eliminating the estate tax would cut state revenues by $120 million when it fully takes effect in 2006 ignores several key points. Virginia will lose even more revenue if the tax isn't repealed, he said.

Congress voted in 2001 to end the federal estate tax on estates valued at $1 million or more. Virginians felt no effect of the state estate tax because it was treated as a dollar-for-dollar credit to the federal tax. Since Congress acted, 32 states also have repealed their estate taxes.

Accountants and lawyers have helped the wealthy avoid estate taxes for generations, and with other states rushing to end the tax, monied Virginians will sidestep the tax by changing their addresses, said Stosch, the Senate majority leader.

"People who have large homes in Aspen or Florida, they'll just move their residences. I would," said Stosch, an accountant in suburban Henrico County.

The effect is worse when the tax forces small business owners to move, he said.

"It would devastate a lot of small businesses, and we need those jobs a lot more than we would need some marginal tax that you can already get around way too easily," Stosch said.

Norment acknowledged the legislation could wait for a year or two, when economists believe the economy will be on the mend.

"But we'd like to go ahead and put it on the books so Virginia will make an affirmative statement that we have addressed this issue and are not a laggard when 32 other states have already addressed the issue," Norment said.