Va. should take note of taxes in other states - Metro Business

Va. should take note of taxes in other states

Monday, May 19, 2008 - 12:06 AM

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By STU NEAL

TIMES-DISPATCH GUEST COLUMNIST

What do Maine, New Jersey, Massachusetts and Michigan have in common, besides being northern states?

The correct answer? High taxes. Or, to be more specific, taxes that have risen (or are proposed to rise) to levels prompting a groundswell of small-business and citizen revolt.

In New Jersey, taxes on businesses small and large have culminated in their mass exit to more tax-friendly states or, even worse, to more tax-friendly countries.

For nearly the past 10 years, the majority of growth was within the public sector, not the private sector. Somebody had to pay for those increases in the size of the government, which created higher taxes for the private sector.

Add in what was perceived to be an anti-business climate, and the businesses left. The government tax burden didn't, so taxes were raised to make up the difference. More businesses left, and now the population is following suit.

In Maine, what was vaunted five years ago as a model program for state-assisted health-care coverage called DirigoChoice has been recently described as "a colossal, expensive failure" by Tarren Bragdon, chief executive of the Maine Heritage Policy Center in Portland.

The program costs $50 million a year to provide partial benefits to fewer than 13,000 people, or about 1 percent of the state population.

Funding through tax assessments on health insurers, originally sold as a way to provide the revenue for the program, hasn't materialized. To find revenue to pay for the program, state legislators passed legislation that will result in higher taxes, doubling levies on beer and wine, initiating the first tax on soft drinks and a nearly 2 percent tax on health-care claims paid by insurers.

A new coalition of more than a dozen business trade groups is leading a statewide drive to place a proposal on the ballot that would repeal the taxes.

In Michigan, the tax burden on small business is seen by some as unsustainable. The state originally initiated a tax called the Single Business Tax, which was promptly voted out by the residents.

To replace the lost revenue, the state initiated the Michigan Business Tax this year. That tax affects any business with revenue of $350,000 or more, and it taxes companies even if they lose money, according to a quote from state Treasury Department spokesman Terry Stanton.

Some businesses have seen tax increases of 400 percent or more. The result is that many business owners are saying that the tax will curtail expansion plans within the state.

An anti-tax group in Massachusetts, the Committee for Small Government, is campaigning to end the state income tax by conducting a petition drive that could force the initiative onto the ballot.

. . .

Why should Virginia take note? Because when state taxes on businesses or personal income reach a level considered unsustainable, unfair or unacceptable, those taxed either go out of business or move to more tax-friendly states.

That creates a death spiral for those states. They are left with the challenge of replacing the tax base to maintain the status quo, usually resulting in even higher taxes.

Stu Neal is chief executive officer and principal of the SMN Consulting Group in Mechanicsville. He can be contacted at SpeakingBusiness@aol.com. Visit his Web site at www.StuNeal.com.