Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, March 22, 1990 TAG: 9003222536
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
SOURCE: RAY L. GARLAND
DATELINE: LENGTH: Long
While the loss of revenue involved - some $30 million a year - is the merest bagatelle, a promised tax reduction set well into the future is an act of dubious courage. Especially so when it is accompanied by the loss of substantial tax relief of the here-and-now variety for low-income taxpayers.
The legislature had proposed to make permanent a $22.50 annual tax credit for those Virginians near the bottom of the economic pile. This tax credit would have done far more to make Virginia's tax system less regressive than repealing the sales tax on non-prescription drugs will ever do.
The problem was that even those who would benefit from the credit knew little about it, while removing the tax on non-prescription drugs was a well-tested political staple.
Of all the phony issues upon which newspapers have wasted ink down the years, none is more phony than the sales tax on non-prescription drugs. In the first place, it is hardly an onerous tax. Even the most dedicated sufferer could hardly consume more than $500 a year in over-the-counter remedies. That would translate to an annual, sales-tax burden of $22.50. More typical consmers might expect to pay $5 or $6 a year.
The argument in favor of a sales tax is that it raises big bucks in small increments, and taps some people who escape most other forms of taxation, which is why conservatives generally love it. The chief argument against it is that everybody pays the same rate regardless of income, which is why liberals generally claim to hate it.
From an ethical standpoint, the real problem with a sales tax is that thousands of vendors must be relied upon to collect it and make an honest accounting to state tax collectors. When the sales tax was enacted in 1966, it was kept deliberately simple for ease of administration and proper auditing for compliance. But the legislature has found itself unable to resist dozens of requests for exemptions. And now comes the exemption for non-prescription drugs to make a leaky tax even leakier.
Picture this, if you can. A customer arrives at the checkout counter with a six-pack of beer, a pound of hamburger, a jar of Noxzema and a bottle of Maalox. He pays for the hamburger with food stamps, on which no sales tax is collected. The beer is taxable, of course, and the Maalox will not be. The Noxzema might be tax-exempt if it is intended as a balm for sunburn, but not if its purpose is purely cosmetic. By this point, it is the poor salesclerk who will need the Maalox.
Now picture the problems of a state tax auditor coming to make certain that the merchant remitted all the tax that he collected. In point of fact, the auditor's task will be a veritable mission impossible.
An outright elimination of the sales tax on everything which can be consumed, excepting only beer, wine and liquor, should now be seen as a pressing priority in the cause of fair taxation.
If state Republicans want to win, this is the issue they ought to take up, and promptly. When the press asks them how they intend to make up the lost revenue, let them take a leaf from Wilder's book and say "we'll worry about that in 1993."
But if the General Assembly deserves a brickbat for its mindless tinkering with the sales tax in pursuit of maximum political gain and minimal tax relief, let's give it a bouquet for finding the courage to revise that equally mindless giveaway of tax revenues embodied in its ill-conceived response to the Supreme Court's ruling last March, holding that states could not tax income from federal pensions while exempting their own.
In an election-year special session of the General Assembly, under the absent-minded leadership of former Gov. Baliles, the legislature exempted large portions of all retirement income, beginning at the absurdly young age of 55.
Under the version of this law as revised by the 1990 assembly, only the first $6,000 of retirement income will be exempt for persons between 62 and 65, and $12,000 thereafter. The kicker is that Social Security benefits must now be counted toward establishing eligibility.
That is, a person over 65 receiving $9,000 in Social Security would be able to exempt that amount, which is already the case, and only $3,000 more. As Social Security benefits rise, the exemption would be gradually phased out, unless increased.
The equal treatment of income regardless of source is the basis of fair taxation. Which is why tax-exempt bonds should be sharply curtailed, and reliance upon the sales tax strictly limited.
While assembly Democrats - and Gov. Wilder in particular - deserve criticism for ditching the low-income tax credit in favor of the bogus cause of removing the sales tax on non-prescription drugs, let's give them credit for finding the courage to address the palpable inequities in the pension/tax giveaway scheme of late and unlamented memory.
And if assembly Republicans disgraced themselves by trying to make political hay by proposing more generous tax breaks for retirement income, they can now make amends by seizing the eminently respectable idea of repealing the sales tax on food.
by CNB