Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, January 24, 1992 TAG: 9201240599
SECTION: EDITORIAL PAGE: A6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
THE FAIRNESS FACTOR
TAXATION is an issue not only of how much to tax, but also of whom and what to tax.One important consideration is progressivity: To what extent does the distribution of the burden reflect taxpayers' relative ability to pay?
Over the past week, as we have editorially advanced a number of tax proposals, the progressivity issue has been mentioned but not emphasized. It deserves its own day in the sun.
According to an April 1991 study by Citizens for Tax Justice, a Washington-based lobbying group that favors more tax progressivity, Virginia's state-and-local tax system is about average among the 50 states and the District of Columbia. The dishonor of most regressive tends to go to states that, having no state or local income taxes, rely more heavily on sales, excise and property taxes.
The average, however, is poor. It is not simply that the percentage of poorer people's income going to state and local taxes is about the same as for more affluent taxpayers. It is that a higher percentage of poorer people's incomes gets taxed.
In Virginia, Citizens for Tax Justice reported, families in the bottom economic fifth spend more than 11 percent of their income on state and local taxes. Families in the top fifth spend only about 8 percent - and only about 7 percent if offsetting federal-tax deductions are taken into account.
Virginia's state income tax keeps the situation from being worse. For that tax, families in the bottom economic fifth pay only about 1.1 percent of their income, a percentage that rises steadily to about 4 percent of income for families in the top fifth.
This suggests that the income tax should be the place to look for new state revenues. Eliminating the age subtraction in the income tax would help make Virginia's overall system more progressive. So, even more, would creation of a new 6.75-percent top bracket on a couple's taxable income in excess of $100,000 (or even $80,000 or $90,000).
The impact of corporate income taxes is harder to assess. If you assume the costs are mainly borne by owners and investors, as Citizens for Tax Justice seems to, then any cuts in the tax - such as the reinvestment tax credit we have endorsed - would be regressive. But if you assume most of a corporation's tax costs end up in consumer prices, then any cut in those taxes would be progressive.
More clearly regressive are sales and excise taxes. Nevertheless, we have called for increases in both.
The impact of an increase in the state-local sales tax on those least able to afford it could be offset by creating a refundable low-income income-tax credit, which would be simpler and better-targeted than, say, exempting food from the sales tax.
And the sales tax should be raised only if the increase is earmarked for public education. The state sales-tax school money ought to be allocated to local districts according to a wealth-based formula rather than just population or enrollment. This would give a progressive twist to an otherwise regressive tax.
The excise-tax increases we favor - on cigarettes, alcoholic beverages and gasoline - are special cases. First, they involve elements of choice that many other taxes do not: whether to smoke, to drink, to car pool. Second, they are intended as much to discourage consumption as to raise revenues.
A surgeon general's report estimates that the annual cost of smoking - including direct and indirect medical costs and lost productivity - is $224 per person in Virginia. More than 500 Virginians died in 1990 in alcohol-related auto accidents.
Tax fairness is not solely a matter of progressivity. It also can mean imposing extraordinary taxes on products whose use imposes extraordinary costs on society.