In my previous post, I argued that Virginia could pay for elimination of the corporate income tax by slashing more than $600 million in tax loopholes identified in 2003 by the Warner administration. Ridding the state of the corporate income tax would have a powerful stimulative effect on the economy — putting some $660 million back in the hands of Virginia businesses and spurring inward investment from companies outside the state. By contrast, the special-interest loopholes have very little stimulative impact to speak of.
Reader R. Stanton Scott is skeptical. “I would want to know just what ‘special interest’ loopholes you mean before agreeing that this would be revenue neutral,” he writes in a comment to the previous post. “This looks like raising taxes on some groups so you can lower them on other–no less special interest–groups.”
Fair enough. What are the loopholes cited by the Warner administration? Well, I’ve dug up the list from the musty Bacon’s Rebellion archives. You can take a look here. Rest assured that the list needs updating. The General Assembly adds to the loopholes over time, it rarely deletes them.
Surveying the list, I can see that the loopholes for corporations would be rendered irrelevant by eliminating the corporate income tax. Therefore, we cannot count deletion of corporate loopholes toward the revenue offset needed to pay for eliminating the corporate income tax. Still, it makes you wonder. Why does Virginia have special exemptions for “qualifying steam producers,” the “purchase of vehicle emission equipment,” “technology investment in tobacco-dependent localities” and the like?
The rest of the list enumerates special privileges that cry out for deletion. Do we really need to exempt drugs for “for-profit hospitals” and “optometrists and medical practitioners” from the sales tax?
Do we really need to exempt “tax credit for rent reductions,” “equity and subordinated debt investments,” and “income received by Holocaust victims”?
Admittedly, eliminating some of these loopholes would be controversial. It may be politically impossible to eliminate the sales tax exemption on food. But as much as we love “those aged 65 and older” and those who earn “military wages,” I don’t see how they warrant special tax treatment. The elderly tend to be wealthier than young people — why a special tax break for them? And, as much as we appreciate the sacrifices made by military personnel, don’t they already get recompensed for fighting in theater?
Tax simplification is a goal we should pursue on moral grounds. Why should one classification of citizens be exempt from taxes that the rest of us have to pay? Deleting these exemptions in order to help finance elimination of the corporate income tax, which would stimulate economic growth and job creation, is icing on the cake.