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Group: VA Budget Will Boost Working Poor's Taxes

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By BOB LEWIS AP Political Writer

RICHMOND, Va. (AP) A change affecting state income taxes in the Virginia budget will leave low income wage earners paying more, an advocacy group for low- and moderate-income people said Thursday.

The Commonwealth Institute noted that by decoupling the state's earned income credit from the federal earned income tax credit, about 114,000 Virginia households will pay a total of $6 million more in taxes for 2010.

The budget change affects families that earn less than $49,000 a year and have three or more children.

It means that starting this year, they can no longer claim 20 percent of a federal deduction for earned income from their state returns.

Michael Cassidy, the executive director of the group, said Gov. Bob McDonnell, a Republican, failed to restore the tax break for working families at the same time he recommended major tax incentives for major corporations.

"It raises serious questions about the priorities of the General Assembly and the administration on how we balance the budget," Cassidy said at a Capitol Square news conference. "It raises the question, `why raise taxes on these people.' These are significant increases, particularly when you consider these people have seen their earnings decline in recent years," Cassidy said.

Among the amendments to the $76 billion two-year state general fund budget that McDonnell submitted by midnight Tuesday was a tax break worth $10 million annually for manufacturers, rejecting the legislature's effort to reduce the tax break.

Also in his budget amendments are state job-creation incentives for Bank of America and SRI, a major nonprofit research institute that will open a drug research center in the Shenandoah Valley.

The provision, part of this year's budget, was left intact by McDonnell when he submitted 96 amendments to the state's master spending blueprint through mid-2012. It does not affect Virginians filing their federal and state income taxes Thursday, the filing deadline for 2009 taxes.

But it does affect taxes paid on income earned since Jan. 1. Without the option to claim on state tax returns one-fifth of the EITC taken on federal returns, the increase would range from an average of $205 for a married couple with three children to an average of $125 for a single parent with three children, the organization said.

McDonnell's press secretary, Stacey Johnson, called the Commonwealth Institute's presentation "politics at its most ridiculous," but acknowledged the accuracy of its claim. "No one filing taxes today is affected by this provision. The Governor will address it next session to ensure it never impacts anyone in Virginia," Johnson said in a written response to journalists' inquiries.

Waiting until the 2011 General Assembly convenes, however, would throw the tax filing process into limbo just as taxpayers begin preparing to file their 2010 taxes. It could force the Department of Taxation to prepare new guidance for professional and nonprofit tax preparers, particularly those who serve low-income working families, and individuals who do their own taxes.

"The complexity here is significant," Cassidy said. "And if the legislature tries to rescind this next winter, it will be a pretty complicated task."

(Copyright 2010 by The Associated Press. All Rights Reserved.)

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