Virginia Legislators Aim at Automatic Expiration of Tax Credits

February 01, 2013

Senator J. Chapman Peterson (D-Fairfax) and Delegate Scott Surovell (D- Fairfax) introduced a joint resolution to the Virginia legislature recently that would make it so tax credits would immediately expire every five years unless reenacted by the assembly.

This “Cinderella” rule is an interesting idea. Virginia’s tax code, especially its corporate tax code, is littered with dozens of special credits for enterprise zones, film production operations, and wineries. Once these tax preferences are in place, they can be hard to remove politically because they create constituencies. Ideally, to create a level economic playing field, the commonwealth would close these loopholes and use the new tax revenue that would gain to lower rates overall.

While Peterson and Surovell’s resolution doesn’t do that, the benefit of this kind of limitation is that it would force policymakers to subject each credit to public and legislative scrutiny at least every five years.

But I think the resolution could be made even better. If the plan works like it is supposed to, particularly unnecessary or unpopular credits would expire year over year, resulting in a net revenue increase for the commonwealth. But tax reform is about broadening the base and lowering the rate, so the resolution would be strengthened if it included a provision that earmarked the new revenue to be used for rates cuts. As a second best option, the new revenue could even be rerouted to the rainy day fund, which serves as a protection against calls for rate increases during tough economic times.

More on Virginia here.

Follow Scott Drenkard on Twitter @ScottDrenkard.

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