The Joint Subcommittee to Evaluate Tax Preferences signaled a new approach to its work at its meeting on September 25. Chairman R. Lee Ware opened the meeting by suggesting that the joint subcommittee take a holistic approach to the effect of tax preferences on the overall tax code rather than examining individual deductions, exemptions, or credits one by one. He suggested that tax preferences be weighed against a set of principles for a sound tax system, such as fairness, transparency, and stability, noting that from a global perspective, tax preferences reduce the overall tax base and require higher tax rates to generate the same amount of revenue. He suggested that eliminating tax carveouts that narrow the tax base could allow overall rates to be lowered. He cited North Carolina as an example of a state that has recently undertaken a large tax restructuring that sought to modify or reduce special tax treatment for some taxpayers in favor of reducing rates overall.
David Rosenberg, Senior Attorney with the Division of Legislative Services, provided a brief overview of some principles for a fair tax system that are generally shared by the Tax Foundation, the American Legislative Exchange Council, and the National Conference of State Legislatures. According to these principles, taxes should be simple (understandable by the average citizen and imposing minimal compliance burdens); transparent (straightforward in their structure); fair (treating taxpayers in similar economic circumstances similarly and minimizing regressivity); economically neutral (applied to a broad base at a low rate and intended to raise revenue, not influence economic decisions); and reliable (stable and sufficient sources of revenue that are predictable for the taxpayer and for the government).
Kristin Collins, Policy Development Director at the Virginia Department of Taxation (TAX), presented information about the revenue implications of several of Virginia’s largest tax preferences. Subcommittee members discussed the growing importance of services in Virginia’s economy and the state’s reliance on individual income taxes. The subcommittee also discussed the effect of sales tax exemptions on localities and requested additional information about the interaction of local taxes, including BPOL, with the state tax system. TAX staff will be providing more information at the subcommittee’s next meeting, which is expected to be in late November or early December.
VACo Contact: Katie Boyle