Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, November 12, 1995 TAG: 9511150080
SECTION: EDITORIAL PAGE: E2 EDITION: METRO
SOURCE: AARON SMITH
DATELINE: LENGTH: Medium
One seldom-reported tax comparison is the per-capita state and local tax ranking. In other words, how does Virginia rank when one considers the average state and local tax burden per citizen? According to Gov. George Allen, Virginia ranks 27th. The Blue Ridge Regional Business Journal reports that Virginia ranks 32nd.
What does it mean when one considers together the two types of Virginia state and local tax rankings? Virginia ranks in the middle third for taxes per citizen and in the bottom third for taxes per $1,000 of personal income.
For both to be simultaneously true, many well-to-do citizens pay about the same in state and local taxes as less well-to-do citizens. Another way of stating it is that Virginia's tax laws have loopholes where well-to-do citizens don't have to pay as much as the average citizen in taxes per $1,000 of personal income.
To understand that there's no such thing as a low-tax state, one first needs a perspective on how a family's spending on government taxation compares with other family-spending needs. According to The Tax Foundation, the average American family in 1994 spent 40.1 percent of its income on government. Compare this government spending to the 15.6 percent spent on shelter, 10.4 percent on medical care, 9.6 percent on food, and 4 percent on clothing.
The average family spends more on government than on shelter, medical care, food and clothing combined.
Professor Gerald Scully of the University of Texas at Dallas has performed some helpful research for the National Center for Policy Analysis regarding how the level of government taxation compares to the gross national product. The GNP is the country's total output of goods and services produced by individuals and their institutions, primarily business. In 1994, our federal, state and local governments took in as taxes an amount equal to 40 percent of the GNP.
The following historical benchmarks show how government taxation is exploding: The level of taxation was equal to 5 percent of GNP in the early days of our republic, 10 percent at the time of World War I, 20 percent at the start of World War II and 30 percent in 1969.
The Center for the Study of the States reports that 19.2 percent of Virginia's personal income is now spent on state and local taxes. With this tidbit of information, the average citizen can estimate how much of his or her paycheck is used for government support.
One can take his or her paycheck and add the federal income tax to Social Security and Medicare taxes. Dividing this federal tax total by the gross pay reveals the percentage of current federal government spending. Combined with the 19.2 percent average state and local government spending, an individual's total government support can be estimated as a percentage of personal income. The result for the average Virginia citizen will likely be about 37 percent.
Returning to the results of Scully's research, the ideal level of government taxation is 23 percent of the GNP. If taxes had been held to this rate for the past 45 years, Americans could have had twice as much income and the same government services. When total taxes rise above 23 percent, they become a drag on the economy by lowering the incentive to work and eroding productivity.
The informed citizen knows, both as a matter of fact and a matter of intuition, that our governments - at all levels - have become accustomed to a standard of living that approaches the exorbitant. Just because Virginia ranks 46th in total state and local taxes per $1,000 of personal income, it can in no way be concluded that it's a low-tax state. Virginia citizens just don't have quite as far to go to bring about much-needed government restraint in the form of both lower taxation and lower spending.
Aaron Smith is treasurer of the Salem Taxpayers Association.
by CNB