DATE: Wednesday, April 23, 1997             TAG: 9704230003

SECTION: LOCAL                   PAGE: B12  EDITION: FINAL 

TYPE: Editorial 

                                            LENGTH:   65 lines

VIRGINIA TAXES SOAK THE POOR?

If Virginia's gubernatorial candidates are looking for a place to revamp taxes, here's a suggestion: Start by eliminating the income tax on the working poor. Then move on to a general overhaul of this inequitable levy.

An analysis by the Washington-based Center on Budget and Policy Priorities shows Virginia to be one of only seven states that tax ``very poor'' families - those living at less than half the poverty level.

In Virginia, a single parent with two children is required to file when earnings pass $5,400, even though that family's income is still $7,111 shy of the poverty level. Meanwhile, a two-parent family of four must pay income tax when earnings reach $8,200, about half the $16,021 poverty level for that group.

Only six states - Alabama, Hawaii, Illinois, Indiana, Kentucky and New Jersey - begin taxing incomes at a lower level than Virginia. In fact, half of the 42 states (including the District of Columbia) with income taxes either do not tax the working poor or, as in the case of Wisconsin, Minnesota, New York and Vermont, offer them an earned-income tax credit.

Neither North Carolina nor Maryland imposes any income tax until a family has passed the poverty line. The federal government gave up the practice more than a decade ago.

Virginia's tax policy toward the working poor is shortsighted on its face. But it's even more provoking when one considers income-tax policy toward the middle class and the wealthy.

The highest income-tax rate paid by any Virginian is 5.75 percent. The rate applies whether you earn $17,000 or $17 million. This is questionable for two reasons. First, because the bracket is not indexed to inflation, more Virginians with relatively less income are paying the higher rate each year. Brackets were last revised in 1990.

Second, the larger one's income is in Virginia, the more generous our tax policies become. While Virginia is a high-income-tax state for the working poor, it becomes a moderate and even generous state as income rises.

In an analysis of 1994 state income taxes, the Minnesota Department of Revenue reached these conclusions: Virginia has the 10th highest state income tax for individuals earning $15,000 annually. It has the 17th highest for individuals earning $50,000. It has the 23rd highest tax for those earning $100,000. And it ranks 30th for those earning $200,000.

Meanwhile, some generous tax breaks deserve re-evaluation. For instance, each child brings a family an $800 exemption at tax time. But elderly individuals, regardless of income, get a deduction worth far more. Under the Age Tax Reduction, passed in 1989, an individual who is 62 to 64 years old gets a $6,000 annual tax deduction. That's true whether he's rich, poor, employed or unemployed. At 65, the benefit rises to $12,000. For married couples, the figure doubles.

Such tax breaks are appropriate for those with a modest or even moderate income. But they are unnecessary for upper-income individuals and deny millions to state coffers each year.

At a time when Virginia is demanding that the poor become self-sufficient, it is counterproductive to maintain public policies that make the task more difficult. The $261 a year that a family of four at the poverty level would gain if Virginia stopped taxing the working poor may be a pittance to most Virginians. But it is half a rent check, a couple of electric bills, several telephone payments or hundreds of hamburgers.

It's money that's far more valuable to the individuals who are paying it than to the state that's receiving it - particularly when the state has fairer ways of recouping any loss. The case for re-examining the way Virginia imposes its tax burden is compelling.

Send Suggestions or Comments to webmaster@scholar.lib.vt.edu