Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, July 21, 1994 TAG: 9407280045
SECTION: EDITORIAL PAGE: A13 EDITION: METRO
SOURCE: Ray L. Garland
DATELINE: LENGTH: Long
For those who missed it, the bill provided $340 million to settle the claims of federal retirees; a flat $12,000 deduction against income for anybody over 65 (starting in 1996); and a sweetened pot for present and future state-government retirees. Over the next five years, this deal is expected to cost the state treasury some $700 million in payments or revenues forgone.
This will be mainly a charge against the state general fund. That term, so often used in newspaper accounts of assembly doings, may not be clear to all. The state budget is divided into three categories: the general fund, the nongeneral or special fund and capital outlays.
General-fund revenues come primarily from the sales and income tax, and fund most state aid to localities and many traditional operations of state government. Nongeneral funds derive from such items as highway-user taxes, federal aid and fees collected by state colleges. They are earmarked by law or tradition to be spent in ways directly beneficial to the people paying them. The capital account relates to construction projects other than roadbuilding and the interest on those previous capital outlays financed by bonds.
For the 1994-96 budget, which began July 1, legislators appropriated $32.4 billion. But less than half, or just over $15 billion, represents the general fund. If there are no new taxes, and revenues come in more or less on schedule, the state can expect to collect at least $45 billion for its general fund over the next five years. In that context, it will be hard to measure the impact of a $700 million diversion. It isn't too much to say it may hardly be noticed at all.
Why? Well, we now understand that no tax levy will ever satisfy the clamor for spending, and anything that comes in the treasury door will be spent. We might see that by comparing the 1994-96 budget with 1984-86. In just 10 years, we see state spending increase by 110 percent, and this despite the three lean years of 1990-93. That's close to double the growth that would have been justified purely on the basis of population growth plus inflation.
It also must be pointed out that the settlement with federal retirees represents almost half the $700 million, and that will be a one-time charge. Whether the state could have settled for $106 million less, as proposed by Gov. George Allen, isn't very significant. A settlement of some kind was clearly necessary. It was well that those who had sourly nursed a grievance for four years go home reasonably happy.
That leaves only the special tax break for senior citizens and the extra dollop given state retirees in partial compensation for losing the tax-exempt status their pensions had long enjoyed under the state income tax. In the next two biennial budgets, covering the years 1996-2000, these provisions will cost no more than $320 million. But bear in mind, this will rise as the percentage of seniors in the population rises.
It was ironic that the assembly had no sooner quit Richmond when a consultant studying the Virginia Retirement System reported that general-fund appropriations to the VRS will have to be increased to keep the system on an actuarially sound basis. The VRS is a 100 percent liability of taxpayers. Since 1984, state employees have not contributed.
You can argue the federal-pensions case or the subject of VRS benefits several ways. But there's no sensible rationale for a $12,000 deduction on the state income tax merely on the basis of someone reaching 65, on top of the extra $800 personal exemption they have traditionally enjoyed. In the case of affluent seniors, the $12,000 deducted from income translates to tax savings of about $650 a year.
If Virginia is in a position to grant tax relief, that would logically take the form of increasing the value of exemptions. While that would apply equally to all citizens, perhaps those trying to raise children and pay for college might be helped more. Considering the cost of raising and educating a child today, the state's $800 exemption - which has gone up very little over the years - is very small. But our politics is geared to greasing the squeaky wheel, and seniors know how to squeak.
That once famous, now largely forgotten dispenser of light fiction, Somerset Maugham, said of Henry James, the American novelist who spent most of his life in London, "He turned his back on one of the great events in world history, the rise of the United States, to report tittle-tattle at tea parties in English country houses." We might slightly re-arrange that thought to apply to most Americans below the age of 50: They turned their backs on one of the most significant events in their country's history, the shifting of the wealth of the nation from those who had earned it to those who hadn't, the better to absorb the tittle-tattle of television.
"Granted," you say, "but this little $12,000 deduction is peanuts. Besides, they'll get it too." Perhaps. But if you will take pen to paper you will find that whatever the rising generation gets when it reaches retirement, will have been paid for five or six times over.
And I'll tell you what else will happen to them. Along about 2:15 in the morning, some 12 years from today, as interest rates soar to cushion a falling dollar or attract lenders to fund the deficit, Congress all in a panic will decide that 70 is a proper age for Social Security to begin, and benefits must be means-tested. When that day arrives, to whom will they apply for a refund?
Ray L. Garland is a Roanoke Times & World-News columnist.
by CNB