
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, July 8, 1994                   TAG: 9407080083
SECTION: VIRGINIA                    PAGE: B1   EDITION: NEW RIVER VALLEY 
SOURCE: DAVID M. POOLE STAFF WRITER
DATELINE: RICHMOND                                 LENGTH: Medium

TAXES ISSUE STICKY

State legislators worked into the evening Thursday to reach a compromise on a tax package that includes a $340 million settlement with federal retirees and two unrelated pension issues.

Six conferees from the House of Delegates and state Senate were close to an agreement on repaying ex-federal workers whose pensions were taxed from 1985-88 under a state policy later declared illegal.

The major sticking point is a Social Security offset for all retired taxpayers, which has grown into a partisan political issue since it was introduced on state tax forms in 1990.

Republicans, who claim the offset is a hidden tax on Social Security benefits, have used the issue to stir up retirees in legislative elections. Democrats have accused the GOP of misrepresenting the complex issue in order to spook retired people.

``To suggest that we tax Social Security is an absolute, blatant untruth,'' said House Finance Director Richard Cranwell, D-Roanoke County.

Republican state Sen. Walter Stosch, a certified public accountant from Richmond, disagreed by noting the state tax code treats all tax income alike.

``It's obvious that you tax Social Security,'' he said.

Leaders of the Democrat-controlled General Assembly sought to put the issue behind them by agreeing to eliminate the Social Security offset. The partisan debate continued, however, because the state Senate and House of Delegates took widely divergent approaches.

A plan developed by Senate Finance Director Hunter Andrews, D-Hampton, would have the effect of giving a small tax break to retirees who receive more than $6,018 in Social Security and raising taxes for those with smaller benefits.

Cranwell derided the Senate proposal as ``reverse Robin Hood.''

``We're robbing from the poor to give to the rich,'' he said.

A Cranwell-inspired House plan calls for giving a tax break to all taxpayers over age 62, a move estimated to cost between $60 million and $70 million a year.

State Finance Director Paul Timmerick cautioned that the House plan - combined with the federal retiree settlement and proposed 3 percent increase in state retiree benefits - would cost more than $300 million over the next two years. That would eat up nearly half of the anticipated $700 million in new revenue during that period.

``You would have to make some very difficult choices,'' Timmerick said.

Senate-House conferees, unable to reach an accord after two hours of discussions, agreed to reconvene later in the night.

by CNB