McDonnell disagrees with study on trimming tax breaks

Virginia officials looking for cash to balance the state budget should consider delaying or junking some tax breaks, according to an economic think tank whose study was knocked down by Gov.-elect Bob McDonnell.

The Commonwealth Institute said yesterday that the state gives up $2.5 billion a year as tax cuts and credits, some of which may no longer be justified. The institute is the research arm of the Virginia Interfaith Center, whose Web site says it works to create "progressive public policy."

Michael Cassidy, director of The Commonwealth Institute, said Virginia should determine whether tax relief is accomplishing what it was intended to promote, be it job creation, the farm economy or coal industry.

But McDonnell, an anti-tax Republican backed by a fortified GOP majority in the House of Delegates, signaled that he expects to close a new, $1.5 billion hole in the budget through spending cuts and other economies.

"The key to an economic recovery will not be found in eliminating tax relief and tax credits," said McDonnell spokesman Tucker Martin. "It will be found in making government work smarter and more efficiently."

Virginia's biggest tax-cut program is the rollback in the local levy on personal cars and trucks, costing about $950 million a year. Other pricey breaks: $791 million in corporate and individual relief, $377 million in lower sales and use taxes, and $140 million through the repeal of the estate tax.

Departing Democratic Gov. Timothy M. Kaine largely has balanced the budget, hit by the recession, through spending cuts. State spending is down $6 billion since April 2007. Because of the downturn and the anticipated loss of federal stimulus money in 2011, multibillion-dollar shortfalls could persist for two years or more.

The budget Kaine leaves McDonnell must, by law, be balanced. McDonnell is expected to seek revisions to the final Kaine budget.

Cassidy says that with the prospects of deeper cuts, Kaine, McDonnell and legislators might want to look at controls on what Cassidy calls the "hidden side of the budget" -- tax breaks.

McDonnell, along with his opponent in the gubernatorial race, argued for greater tax relief to help jump-start the economy. For example, both favored tax credits for new jobs.

McDonnell returned to his transition office off Capitol Square yesterday after a football weekend at his undergraduate alma mater, the University of Notre Dame. The trip was paid for by former Del. Alexander B. McMurtrie Jr., D-Chesterfield, a fellow Notre Dame alumnus who backed McDonnell over state Sen. R. Creigh Deeds, D-Bath.

Contact Jeff E. Schapiro at (804) 649-6814 or .