Think again: Kaine should revise tax stand
On November 8, Virginia voters elected a new governor. They chose between three candidates who presented sharply contrasting views on many issues. Yet on one important issue, Virginia voters had no real choice. Sadly, all three candidates favored eliminating the state's estate tax– a costly policy choice that will benefit only the wealthiest Virginians.
Speaking to an audience of Virginia farmers in September, then-candidate Tim Kaine made it clear that he didn't see a role for the estate tax in Virginia's fiscal future. And throughout the campaign Kaine expressed his support for repealing the estate tax gradually over a number of years.
This is all the more distressing because in other fiscal policy areas, Kaine has shown true fiscal leadership and a willingness to ask difficult and politically unpopular questions about the state's ability to fund important services. Since the election, the governor-elect has organized meetings across the state to discuss options for improving the state's woefully under-funded transportation infrastructure.
On the estate tax, however, he couldn't be more wrong.
Because proponents of estate tax repeal have been so consistently guided by innuendo and scare tactics rather than cold hard facts, it would have been refreshing to hear him show an understanding of the options available. Unfortunately, Kaine seems to have caved in to the fiscally irresponsible– and misleading– rhetoric of the anti-estate tax crowd.
Now seems as good a time as any to remind the Governor-elect and Virginians of some basic truths about the estate tax:
* More so than any other Virginia revenue source, the estate tax applies only to a small number of the most valuable estates. The complete exemption of all estates worth less than $2,000,00 for married couples meant that in 2003, less than one thousand of the very largest Virginia estates owed any tax at all.
* Without the estate tax, much of the value of these few taxable estates would actually never be taxed at all, because the largest taxable estates are typically made up primarily of untaxed capital gains.
* Thanks to reforms put in place during the Clinton administration, even more generous exemptions are available for family farms and small businesses. As a result, even the most ardent proponents of estate tax repeal have trouble finding a single family farm that has been broken up because of the estate tax.
* And perhaps most important, the estate tax helps fund public services. In 2004, the tax brought almost $150 million into the state's coffers.
While the state's fiscal health has improved somewhat in the last year, most observers remain leery of the future. None of the three gubernatorial candidates were willing to take a "no new taxes" pledge– a clear indicator that the state's recent budget deficits may reappear quite soon. If this happens, the revenue loss would fall more heavily on working Virginia families than does the estate tax.
Virginia lawmakers have shown true courage and resolute leadership on fiscal policy issues in recent years, helping ensure adequate funding for public services by increasing taxes in 2004. Let's hope that as Governor, Kaine will follow this example and not cut taxes for the least deserving.
Kelly Davis is a senior policy analyst for the Institute on Taxation and Economic Policy, a non-profit, non-partisan research organization that studies this kind of thing.