Tax credits on the block

Published 8:54 pm Monday, January 23, 2012

By Hannah Hess

Virginia Statehouse News

Liberals and conservatives agree on few things in Virginia politics, but some members of both groups have placed ending the tax credits, which cost the commonwealth billions of dollars in lost revenue, high on their agenda for 2012.

Email newsletter signup

Delegate David Englin, D-Alexandria, wants to shine a light on tax loopholes that allow companies to keep money that could be stuffed into state coffers.

Englin’s proposal would “allow the General Assembly, and legislators and citizens to go back and look and see how much money we’re losing from these tax giveaways, and whether we need to take them off the books or continue them,” he said Thursday during a news conference with liberal lawmakers of the Progressive Caucus.

For the conservatives, Delegate Ben Cline, R-Rockbridge, has proposed adding sunset provisions to all new tax credit deals being floated for Virginia businesses and asking the state tax commissioner to annually report the estimated revenue loss of each tax credit scheduled to expire in the next two years.

Englin said enhancing transparency for tax credits is “one area of overlap” between the Progressive Caucus, of which he is a member, and the Conservative Caucus, which Cline co-chairs.

“The vast majority of our agenda will be working against many of their initiatives,” Englin said, but “this is one area where I think liberals and conservatives can find common ground.”

The state’s November unemployment rate, calculated by the U.S. Bureau of Labor Statistics, was 6.2 percent, and GOP leaders in the General Assembly and Republican Gov. Bob McDonnell are working to carve out fresh tax loopholes to attract new employers.

The state’s unemployment rate is relatively low when compared with its neighbors. West Virginia’s unemployment rate for November was 7.8 percent; North Carolina’s at 10 percent; and Maryland’s at 6.9 percent. The national unemployment ratefor December was 8.5 percent.

Still, McDonnell said Thursday, tax reform is needed to bolster the overall jobs outlook.

“What I think is we need an updated tax code that will make Virginia more competitive and have our system be more fair and equitable to all concerned, and do things to promote jobs,” he said. “I’ve got a lot of new tax credits and policies that I put in this year, in the budget, and also in legislation to try to make it easier to create jobs.”

As part of his 2012 agenda, McDonnell has proposed tax credits for small-business investors. Those who invest in small businesses with less than $10 million in annual revenue and fewer than 250 employees would be eligible for tax credits.

Passing the tax credit is a priority in the Senate, where Republicans are tied with Democrats at 20. But the GOP enjoys majority control of most issues, thanks to Lt. Gov. Bill Bolling’s tie-breaking vote power. Bolling is a Republican.

House Republicans, who hold a 67-32 majority, also are pushing for more tax breaks as a way to spur economic growth.

“Helping job creators in Virginia secure the capital investments they need in order to create jobs is a critical piece of the puzzle,” said Delegate Terry Kilgore, R-Scott, who proposed extending the Major Business Facility Tax Credit through December 2014.

The tax credit applies to both regional and national companies based in Virginia that create 50 full-time jobs. After surpassing 50 workers, companies earn a $1,000 tax deduction for each new employee.

Englin said ending those tax handouts and taking a closer look at how much they cost the state should be a basic part of responsible fiscal management.

Virginia law shields the names of businesses and individuals receiving the tax credits. But a November 2011 study by the Joint Legislative Audit and Review Commission, an oversight body for the General Assembly, followed the money and its impact.

In 2008, the study showed, taxpayers handed out $12.5 billion in tax incentives — an amount nearly equal to the $14.3 billion in revenue collected that year.

Cline’s bill, H.B. 246, is before the House Finance Committee.