Economist Aims to Help Citizens
Flawed Income Tax In Need Of Major Revisions, Analyst Warns
July 16,, 2002-- Virginias
income tax is outdated and seriously flawed, adversely affecting
those with little ability to pay and often imposing very different
tax liabilities on Virginians with the same income, an economist
warns in an analysis published by the University of Virginia's Weldon
Cooper Center for Public Service.
the tax is the largest revenue source of Virginia's state-local
tax system and is likely to become even more dominant, it needs
major revisions to make it fairer, according to John H. Bowman,
professor of economics at Virginia Commonwealth University. His
in-depth analysis, aimed at helping Virginians make informed choices
in current debates about taxes, is the first in a new U.Va. series
of fiscal monographs, ≥Virginia Issues.≤
Bowman's recommended revisions:
tax-free levels (personal exemptions plus standard deduction)
at least to correspond to poverty levels;
phase in an end to special preferences for age and blindness because
they are flawed proxies for ability to pay, which is better measured
the personal exemptions, standard deductions and bracket widths
to increase with inflation, or review them for fairness every
blanket exclusions for some sources of income, such as Social
the overall rate structure, possibly to a single rate for all
taxpayers. A single-rate tax offers several advantages, including
improved fairness among all types of filers at a given income
level, Bowman said. Moreover, he shows that a single-rate tax,
combined with realistic tax-free amounts, results in a progressive
distribution of the tax burden.
income tax is the result of piecemeal changes, and the basic rate
structure has been unchanged for nearly 75 years, Bowman said. The
personal exemption of $800 and standard deduction of $3,000 for
single taxpayers and $5,000 for married couples haven't been adjusted
in over a decade and are too low today to provide fair relief, he
recently added credit for low-income individuals provides relief
for most Virginians below the poverty level, Bowman said. But "it
does nothing for those with income above the poverty level,"
and the abrupt cut-off actually imposes very high effective rates
for those just above the poverty level, he said.
other major weaknesses he cited in the income tax are:
exclusions for some sources of income, such as Social Security;
high ($6,000) special deduction for taxpayers who are 62 to 64
years old and the even higher one ($12,000) for those over 65,
regardless of their income.
a result of these breaks, taxpayers with the same income level may
actually be taxed at widely different rates, Bowman said.
large chunks of income on the basis of income source or age of recipient
ä is inappropriate and inequitable," he said.
the income tax fairer is especially important because of Virginia's
dependence on it, even though Virginia is generally a low-tax state,
he said. In 2000, Virginia was one of only four states that obtained
more than half of all its state tax revenue (not just general fund
tax revenue) from the income tax, he said. Virginia obtained 54
percent from the income tax, or 1.5 times the national average of
the monograph, Bowman puts forward several possible alternative
individual income tax structures. All were designed to be revenue
neutral, based on revenue simulations conducted by the Virginia
Department of Taxation. Revenue neutrality means that the alternatives
would yield the same revenue as the current tax in a base period.
This standard was adopted to focus attention on tax structure issues,
Bowman said, and does not presume that the current revenue level
is the best one. Policy makers may wish to raise more revenue, or
less, but whatever level of income tax revenue is desired, he said,
a better income tax structure should be adopted.
Carol Wood, (434) 924-6189
interviews or additional information John H. Bowman may be reached
or (804) 828-7187.
copy of the full study is on the Web at http://www.virginia.edu/coopercenter/vastat/virginiaissues/bowman.pdf
If you have trouble accessing via the Internet, we can e-mail you
a Word document. Call Sally Barbour at (434) 924-7116 for help.
To purchase a print edition from the Cooper Center, go to our publications
Web page: http://www.ccps.virginia.edu/publications/.