Virginia House bills aim to lower corporate income tax

RICHMOND — Although Virginia’s revenue dollars are falling back to 2006 levels, bills pending in the General Assembly would trim one of the state’s major sources of revenue: the corporate income tax.

The tax cuts wouldn’t take effect this year. They look ahead to a time when, legislators hope, the recession no longer has Virginia’s budget in a bind and new jobs are being created.

Del. Ben Cline,

R-Rockbridge County, told a subcommittee on Friday that cutting the corporate tax rate from its current 6 percent down to 5.75 percent would be a “baby step” to encourage corporations to move their businesses, and jobs, to Virginia.

Eventually, that corporate tax reduction would generate new revenue from other tax sources such as the personal income tax and sales taxes, Cline said.

He acknowledged that his bill initially would cost Virginia $30 million per year in revenue from corporations.

“I believe that the effect on business growth would be more than enough to offset that impact and light a spark that would resonate with our business community,” Cline told the subcommittee.

Cline agreed to defer his bill (HB 860) while the subcommittee considers a similar, but much bigger, cut in the corporate tax.

Del. Harry Purkey, R-Virginia Beach, and chairman of the House Finance Committee, proposes to eliminate the corporate income tax altogether starting in 2013. Purkey’s bill is HB 119.

Purkey said it makes sense to wipe the levy off the books because America’s corporate income taxes “are the highest in the world.”

“There is an absolute correlation, unequivocally, that if you reduce our corporate taxes … jobs will stop leaving this country and start coming back here,” Purkey said.

He said Virginia should start now to “lay the foundation for really good job creation.”

As of Friday, no one had a good estimate for when the expected jobs actually would appear and when Virginia could start making up the revenue lost to the tax cut.

“There is no question that there is a lag” of a few years before Virginia would start to regain those revenues, Purkey said.

Private economists are analyzing the lag’s likely duration, Purkey said. Further action on Cline’s and Purkey’s bills will wait until that analysis is done.

The state Department of Taxation estimates that Purkey’s bill would take almost $1 billion per year out of Virginia’s revenue pool for each of the next six years. That’s about 2.5 percent of the annual budget Virginia is likely to adopt this year.

Purkey said his bill has a sunset clause. “If, after three years, it’s not working, it dies,” he said.

Just having the prospect of a corporate tax cut in Virginia’s law, to take effect in a future year, would help in recruiting business to the state, Purkey said.

“From an economic development point of view, if we have that out there, we can use it as a tool to attract industry here,” Purkey said.