Pursuant to Article V, Section 6, of the Constitution of Virginia, I veto Senate Bill 1123, which would repeal the estate tax in Virginia beginning in Fiscal Year 2005.

Virginia’s deep budget shortfall of the past year is due in large part to an irresponsible fiscal policy during the late 1990s. That policy was marked by unchecked growth in spending and the enactment of more than 50 tax cuts and exemptions whose costs could not be sustained over time. Only when the national economy entered a severe recession in 2001 did the true extent of this policy become fully evident.

The tax repeal contained in Senate Bill 1123 continues this irresponsible fiscal policy. Under this bill, an estimated $211 million in tax benefits would be awarded in the next biennium to fewer than 1,000 families in the Commonwealth. In fact, the estates covered under this bill would be worth at least $1.5 million per individual. What is particularly unfair about this tax cut is that is being proposed at the same time that college students are paying higher tuition at our state universities, the poor and mentally ill are facing curtailed social services, and programs that benefit all Virginians - ranging from parks to environmental protection - are under-funded due to our severe fiscal crisis. Moreover, the General Assembly has proposed this course before it has fulfilled its promise to phase out the car tax and the food tax, which impact nearly all Virginia taxpayers.

My concerns over this repeal have only deepened over the past several weeks. The nation is now at war with Iraq, and the cost of this conflict - coupled with Washington’s current fiscal policies - make it likely that the federal government will face large budget deficits for the foreseeable future. Even the U.S. Senate recently cut $100 billion from the proposed federal tax cuts, reflecting a growing need for more fiscal discipline and recognizing the unforeseen costs of the war. These deficits will constrain federal aid for the states and should reinforce the need for a cautious fiscal approach in the Commonwealth, particularly at a time when homeland security costs are mounting on the state and local level.

Virginia should undergo a thorough review and restructuring of its tax code to ensure that it is fair and efficient to reflect our modern economy. Estate tax reform should be a part of that process. And I will work with the legislature to address estate tax reform next year in our continued efforts to ensure a fairer tax code. With the passage of this bill, the General Assembly has isolated the estate tax for action. In my view, this piecemeal approach to tax reform is inappropriate and will undermine our shared, bipartisan desire for a tax code that increases fairness.

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