DATE: Monday, October 13, 1997              TAG: 9710110001

SECTION: LOCAL                   PAGE: B10  EDITION: FINAL 

TYPE: Editorial 

                                            LENGTH:  112 lines

TWO BAD CAR TAX PLANS A COMPARISON

The hated car tax has become the centerpiece of the gubernatorial campaign. People hate it for good reason: It is levied in a bad way at a bad time and burdens some Virginians while letting others escape. Clearly, reform is needed.

But not abolition at this time. Proposing to forgo so much revenue when the state has huge unmet transportation and education needs suggests the two candidates have their priorities upside down.

That said, six significant distinctions can be made between the car-tax plans offered by Republican candidate James S. Gilmore III and Democrat Donald S. Beyer Jr. (1) Gilmore's plan, fully phased in, would cost the state several times as much as Beyer's proposal. (2) Gilmore's plan gives the biggest break to those who own the most and best cars, while Beyer's plan gives no break to high-income Virginians. (3) Gilmore's plan jeopardizes localities' fiscal health in a way that Beyer's does not. (4) Beyer's plan offers no car-tax benefit to car owners too poor to pay state income taxes, while Gilmore's plan gives a tax break to everybody who pays the car tax. (5) Gilmore's plan would be phased in over five years. Beyer's plan takes effect immediately. Beyer's plan offers greater benefits the first year but not later. (6) Beyer's plan still requires car owners to write a check for the tax. Subsequently, they receive an income tax credit. Under Gilmore's plan, the car-owner writes no car-tax check. Instead, the state reimburses localities for car taxes they no longer collect from car owners.

Here are some of the details:

Who benefits?

Under Gilmore's plan:

Everybody with one or more private vehicles.

Under Beyer's plan:

A single person with an annual income of $40,000 or a couple with an annual income of $75,000 or less. According to Gilmore's analysis of state tax returns, 1,864,699 Virginians would not qualify for a car-tax break under Beyer's plan - 1,241,896 because they are too poor to pay state income taxes and thus benefit from a tax credit, and 622,803 because their incomes are too high.

How big are the tax breaks?

Under Beyer's plan, $150 per single person and $250 per couple. That's not per car, mind you. Those are the maximum breaks, no matter how many cars are owned.

Under Gilmore's plan:

Residents would pay no property tax on the first $20,000 of value for any of their vehicles. If a couple owned three vehicles valued at $20,000 or more, the average tax break would total $2,100. It would be even higher in localities with above-average personal-property tax rates.

According to the Virginia Municipal League, the average private vehicle in the state is valued at $5,200. The average personal-property rate in the state is $3.50 per $100 of value. Thus the average car-tax totals $182.

Obviously, the benefit to the well-to-do would be far greater under Gilmore's plan than Beyer's. For an average-income couple owning a single car worth an average amount, the difference in benefits between the two plans would be small or nonexistent.

How expensive are the two plans:

Beyer says his would cost the state about $202 million a year.

Gilmore says his plan, fully phased in, would cost $600 million annually. The Virginia Municipal League, after consulting localities around the state, reported that the cost of Gilmore's plan would be more than twice what he says.

So Gilmore's plan is between three and six times more expensive than Beyer's, assuming his estimate is correct. The League, which represents the state's 40 cities and most of its 190 towns, has not analyzed Beyer's estimate.

Which plan do local elected officials prefer?

Beyer's, without question, because his plan allows them to continue collecting the car tax. Even if the state reneges on its promise to offset the car tax with an income-tax credit to owners, the localities have their money in hand. The League has not analyzed Beyer's plan because it is considered far less threatening to the fiscal health of localities than Gilmore's proposal.

Gilmore's plan requires localities to stop collecting the tax, except when vehicles exceed $20,000 in value. (For a $30,000 car, a locality still taxes the top $10,000 in value.) If the state reneged on its promise to reimburse localities for taxes that they were ordered not to collect, they would have the option of reimposing the tax. But that could be political suicide for city and county officials.

Currently, localities receive 30 percent of their income from the state. If Gilmore's plan led to the state reimbursing localities $1 billion a year for lost personal-property tax revenue, localities would be dependent on the state for 39 percent of their revenue, according to Old Dominion University Professor of Accounting Jesse W. Hughes.

The difference between 30 percent and 39 percent represents a large loss of local autonomy.

Is there a free lunch?

Both candidates say so. Both argue that burgeoning revenues will enable the state to enact their car-tax proposals painlessly, even while increasing spending for education.

However, the state has a record of keeping promises to cities only when it can afford to and of breaking them when they become too expensive. The next governor's promises, even if kept, are not binding on subsequent state leaders.

Most important, the state faces billions of dollars in unmet education and transportation needs. Money that goes to cut the car tax cannot go to meet those needs.

In short, there is no free lunch. There are hard choices.

Which car tax proposal do we endorse?

Neither is sound public policy, but Gilmore's is worse. It applies state taxes to a city tax in a way that makes taxes in Virginia more regressive. The most benefit goes to the least needy.

Gilmore's plan is potentially more injurious, both because it costs far more and because it jeopardizes localities' second-biggest income source, after the real property tax.

The odds are against either car-tax plan being enacted by the General Assembly. Unfortunately, the next governor may be elected because of car-tax promises that won't be kept and would harm the state if they were. Instead, the election should turn on the the needs that must be met if Virginia is to be competitive in the 21st century.

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