Kaine proposes increase in income tax, repeal of car tax

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Gov. Timothy M. Kaine has proposed a $76.8 billion biennial budget that would eliminate the local car tax, but boost state income tax by 1 percent to cover an estimated $4.2 billion shortfall.

“This will diversify local revenues in a way that will help cities and counties manage through some of the painful cuts we have announced here,” Kaine said.

Increasing the income tax would boost state revenue by $1.9 billion, but the plan is unlikely to gain traction. Gov.-elect Bob McDonnell and Speaker of the House William J. Howell, who are both Republicans, have rejected Kaine’s plans to increase taxes during the economic downturn.

Kaine’s budget also would repeal the “dealer discount” for retailers. The discount is designed to help businesses cover the cost of collecting the state sales tax.

“While it once made sense to compensate merchants for the labor costs of collecting sales tax on behalf of the commonwealth, the digital era has rendered this discount both unnecessary and archaic,” Kaine said. The move would save the state $120 million.

Under the plan, recording titles on land fees would also double to $20 and tax on a bottle of liquor will increase 2 percent.

Kaine’s budget is based on a 2.7 percent revenue decline for the current fiscal year (2010) and a 3.8 percent and 5.1 percent growth in the following years. This marks the first time in recorded history that Virginia’s revenues have declined in consecutive years.

Kaine estimates that the upcoming budget gap will be $4.2 billion during the biennial budget, based on projecting the current budget and taking into account mandates such as debt service payments, economic development contracts and increases in the state’s Medicaid rolls.

“A significant part of that gap is created by the end of federal stimulus dollars in 2011,” Kaine said. “Closing that gap will require painful choices — choices that no one will like but that have to be made.”

Kaine’s plan would cut $2.3 billion from the state budget. His cuts cover a wide range of state expenses:


Public universities and colleges would receive a 26 percent cut in funding under the current plan, which would bring their funding to less than their 2006 levels.

For K-12 education, Kaine’s plan would reduce spending by $357 million by capping payments for support and administrative staff and basing health insurance payments according to the number of employees using the health insurance, rather than just the number of employees in a locality.

Public safety

Public safety would see sweeping cuts under Kaine’s budget. Local sheriffs’ departments would see a 20 percent drop in state payments, likely requiring layoffs at the local level. Commonwealth’s Attorney offices and Circuit Court Clerks would see a 16 percent reduction.

Health care

Kaine’s budget would also reduce payments by $419 million to health-care providers to Medicaid patients. The downtrodden economy has increased the number of Virginians who are eligible for Medicaid. State expenses are expected to increase $778 million in the next biennium.

Some Medicaid services would be reduced or eliminated, including physical, occupational and speech therapy. The state will also freeze some waiver programs, including intellectual disabilities, development disability, day support, elderly and disabled and Alzheimer’s waivers, forcing many people to remain on waiting lists.

State employees

Kaine’s budget also calls for the layoff of 664 employees, mostly from the Department of Transportation, Department of Behavioral Health and Development Services, the Department of Corrections, the Department of Juvenile Justice, and the University of Virginia. Kaine’s budget would also eliminate 1,879 vacant positions.

Additionally, Kaine has recommended that state employees pay a portion of their retirement contribution. Employees would be required to pay 1 percent of their salaries beginning in fiscal year 2011 and 2percent starting in 2012 to receive benefits under the Virginia Retirement System. Currently, the state covers both the employee and employer contributions to VRS.

The retirement age for state employees would also increase from 50 to 55.

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