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Group says it can cut taxes, improve economy
BY CHELYEN DAVIS
A Virginia group says it has come up with a way the state could reduce many taxes and improve the economy at the same time.
And it could even win support from business groups and local government groups alike, they say.
The Thomas Jefferson Institute for Public Policy--a Virginia-based government policy think tank--on Friday released a study on restructuring the state's tax system.
It relies on applying the sales tax to many services, all of which are currently exempt from charging a sales tax.
In exchange, the plan would eliminate three taxes hated by the business community: the Business, Professional and Occupational License tax, the merchants' capital tax and the machinery and tools tax.
Those three taxes are levied at the local level, and not all localities use all three.
The institute's study says that eliminating those taxes and broadening the sales tax to include services would encourage businesses to expand, and could be done in a "revenue neutral" manner to appease anti-tax politicians.
"Revenue neutral" generally means that a tax reform plan is a wash, in terms of tax revenue generated, at the time it's implemented--tax increases are offset by tax reductions. Such plans are generally expected to increase revenue in the future, however.
According to the institute's study, if Virginia taxed most services and cut out those three business taxes, it could also reduce the sales tax overall, or eliminate income taxes for the lowest-income Virginians, and still see additional revenue in the future as well as economic benefits.
Part of the study, done by Richmond economist Christine Chmura of Chmura Economics and Analytics, showed that if all of Virginia's sales tax exemptions were removed, the state could drop the sales tax to 1 percent and still collect about the same amount of revenue as it does under the current sales, BPOL, machinery and tools, and merchants' capital taxes.
If the state taxed services but still exempted business-to-business transactions, the sales tax could be reduced to 1.6 percent to collect the same revenue.
The institute study proposes to leave some services, such as health care services, exempt from sales tax.
Chmura reported that the BPOL, machinery and tools, and merchants' capital taxes bring in about $834 million, largely from the BPOL tax.