Personal and corporate income taxes and sales taxes represent a large portion of state revenue, but the budget will not have enough money to stretch over the course of the 2008-2010 period. Corporate and sales tax revenues are contingent upon economic conditions and thus have not produced as much revenue as orginally anticipated, causing a portion of the shortfall.
In fact, a spokesman for the Governor admitted in today's Washington Post:
"the 2008-2010 budget period will feature slower growth than anticipated, but we are not in a position to validate the numbers that the Commonwealth Institute is giving out"
Virginian officials seem not to be worried about the shortfall, expecting to rely on the state's Rainy Day Fund in case there is not enough money to cover expenses. But this fund can only be used in specific circumstances and does not hold nearly enough money to finance the deficit.
Virginians, on average, earn more than residents in most other states, coming in at #10 in average income. Meanwhile, its residents pay the 10th lowest tax rate in the country. The report discusses many issues in recent tax policy and advocates for reform of an outdated tax structure set in place in the 1920s.
This huge shortfall will hit hard on the state's various important needs such as education, healthcare, and transportation. The Institute's report outlines that a solution can be found in raising taxes to generate additional revenue. Because the state has a higher average income and a lower tax rate than most, there is potential for raising more money. One way to ensure increased revenue is to raise the personal income tax. So now the question for Virginia becomes: would you rather raise a little tax or not be able to provide free public education and low cost public transportation?