A Win-Win Way to Restructure Virginia’s Tax Code

Restructuring Virginia’s tax code by taxing services and using the proceeds to roll back business and income taxes would stimulate $340 million in additional investment, create 77,000 jobs and increase real disposable income by $2.78 billion under one of nine scenarios studied by the Thomas Jefferson Institute for Public Policy in a new study, “Tax Restructuring in Virginia.

The Thomas Jefferson Institute explored the scenarios in collaboration with Chmura Economics & Analytics, a Richmond-based consulting firm, and the Boston-based Beacon Hill Institute to see if reconfiguring the tax code along revenue-neutral lines could yield superior economic performance. “What we found is truly fascinating,” said President Michael Thompson. “So much good could be accomplished by restructuring the current taxes without the overall tax burden being any different than it is today.”

One of the nine scenarios assumed that the state sales tax would be extended to all services, which are currently exempt, except health care. The revenue raised would be applied to eliminating the Business Professional and Occupational License (BPOL), the Machinery & Tool (M&T) tax and the Merchant Capital (MC) tax; to cut the state income tax on the first $5,000 in income; and to trim the top income tax rate from 5.75% to 5.3%.

Such a restructuring would stimulate economic growth by shifting the tax burden from consumption to business investment and income, explained Paul Bachman, director of research at Beacon Hill. The benefits would not be immediate, he said, but would phase in over roughly five or six years.

From an economic perspective, a lower, broader tax base is preferable, said Thompson: Lower taxes produce fewer distortions in the economy, encourage investment and incentivize people to work harder. The Virginia Municipal League and Virginia Association of Counties have told him that as long as the tax restructuring was revenue-neutral for local government, they had no problem with the concept.

BPOL, M&T and MC generate revenues for local governments, while the sales tax goes to state government. Thompson said that an arrangement could be worked out, similar to the roll-back of the telecommunications tax, for the state to offset local governments’ lost revenue.

A potential objection to the restructuring could come from those who see it as hurting lower-income Virginians. It could be argued that businesses and higher-income individuals would see the greatest benefit, while lower-income households would share in the pain of paying the tax on services, like getting a haircut. Thompson contended that his Scenario #7 would benefit less affluent Virginians by eliminating the tax on the first $5,000 in income. Also, he said, the 77,000 jobs created would go predominantly to lower-income workers.

Thompson said he has presented his findings to Governor Bob McDonnell’s policy team and has gotten buy-in from business groups like the Virginia Chamber of Commerce. Said he:

It is time for Virginia to look at its out-dated and antiquated tax code and bring it into the 21st Century. The BPOL tax, for instance, was started almost 200 years ago in order to pay Virginia’s share of the War of 1812. We know the facts in this new study and in our tax model will dramatically improve Virginia’s economy while giving every tax payer a substantial reduction in their state income taxes. We encourage our leaders to pursue a sensible tax restructuring that can help everyone in our state.

Bacon’s bottom line: This proposal has a lot of potential. The plan will generate push-back, though, from people arguing that it would increase the tax burden on the poor. Ideally, changes to the tax code would be not only revenue-neutral but would not add any hardship to the poor. If Thompson can address that concern, the plan looks like a winner.

– JAB

51 Responses to A Win-Win Way to Restructure Virginia’s Tax Code

  1. need to put a plug in for Waldo’s latest brilliance:

    Virginia Decoded – http://vacode.org/.

    I did not see a reference to it in the study.

    what Waldo did is worth looking at – actually pretty neat!

  2. why can’t the ALEC do constructive work like this?

    I agree about the legitimacy of the 3 taxes and you know what?

    I would hope that localities themselves would get rid of these taxes instead of having to be coaxed by the state to do it.

    they are clearly anti-business and discriminatory.

    Heck.. as far as ALEC is concerned why can’t those Yahoos down in Richmond do something along these lines instead of vaginal probes and voter ID because 38 people out of millions broke the law?

  3. “I would hope that localities themselves would get rid of these taxes instead of having to be coaxed by the state to do it.”.

    You should use Waldo’s new tool. Search on BPOL. This is the state law of Virginia. Here is just one of the laws:

    http://vacode.org/58.1-3703.1/

    It sure doesn’t look like the localities have any say in the matter of BPOL taxes.

    Lord knows, they have no power to levy and alternate tax on services.

    Seriously, LarryG! Do you really think the Clown Show in Richmond lets localities make any substantial decisions?

    I am not a lawyer but I don’t think a locality can stop collecting these taxes and I don’t think they can institute the substitute tax.

    I am happy to hear that I am wrong if that is the case. However, my general rule in Virginia is that the Clown Show makes the rules whether the localities like it or not – even for tax revenue that goes to the localities.

    Hell, LarryG – localities have to ask the Nanny State if they want to change the regulations about the height of weeds in their jurisdiction.

    http://scottsurovell.blogspot.com/2012/01/dillon-rule-height-of-grass.html

  4. Ok – LarryG … here is an intermediate WordPress question. My prior comment has two links. Yet, it is not awaiting moderation. How is this possible?

  5. This is a cruel idea that burdens the poor and lower middle class in favor of the business class . What you expect of the “Thomas Jefferson” Institute, which is in reality a business lobby masquerading as a think tank? Why quote them at all? Didn’t you have enough of them when you let them use your name?

  6. re: mandatory taxes.

    hmmm.. do you know the mandatory tax rate?

    My jurisdiction apparently broke the law when getting rid of BPOL?

    re: 2 links – ask your 15 year old and get back to me.

    well DJ.. could have not advocated getting rid of the tax but they chose to advocate revenue neutral.

    I particularly think taxes on business are onerous and short-sighted especially if you say you want more jobs for people that need jobs.

  7. This is an absolutely great study.

    First off, the BPOL is rightfully a hated tax, it is far too burdensome on start-ups and new businesses. That’s very, very counterproductive when you consider the need to encourage new businesses being formed in Virginia.

    I’m not really going to waste time arguing that Virginia needs to “focus” on manufacturing (that’s so 19th Century!) but I don’t see why our tax structure should disadvantage investment in new capital. I’d be more than happy to cut, if not eliminate, the Governor’s Opportunity Fund and other handouts to manufacturers as part of working to level the playing field between Virginia and other states.

    The only pause I have is the geographical component. I was never a big fan of Gilmore’s car tax scheme. It made me uncomfortable to view Richmond as a grand central redistribution hub meddling in the affairs of localities, using general fund revenue to cut (with the failed hope of eliminating) local personal property taxes. If we expand the tax on some services, but eliminate these burdensome taxes (AND reduce the tax burden on Virginia’s most vulnerable), is there a geographic component? Will it hit some localities more than others?

    It has been a long, long, long time since I’ve read it, but I’ve always kept a copy of “The Vermont Papers” by Frank Bryan and John McClaughry close at hand. I like their attempts at trying to apply federalism to the structure of state government. In one chapter they discuss fiscal components to federalism and argue that the state needs to define a clear line between income/revenue sources it will collect, and income/revenue sources it will leave to localities. If an objective analysis of the resources of a locality finds that it’s just too poor to sustain itself, only then would the state step in and try to level the playing field.

    It would be nice to try to have this discussion in Virginia. What should the Commonwealth depend on, primarily, for its finances. What should localities? Why?

  8. the car tax is also a “hated” tax that many would gladly see go away but if the criteria is that the result be revenue neutral….

    your options:

    1. real estate
    2. sales
    3. income
    4. value-added?

    an equally important but probably inscrutable question is how much SHOULD localities be taxing anyhow?

    One of my favorite wonk places is the Va Auditor spreadsheet comparing the fiscal affairs of all the localities in Va including a calculation for average for state and average per capita for dozens of various categories of expenditures (and taxes).

    Va has standards for all manner of things to include schools, Constitutional officers, socials services, law enforcement, etc.. but interestingly enough not for many other things and not for LOS – like scope and scale of fire and ems.

    The BPOL is basically legalized extortion….

  9. and here’s something the state pretty much dictates to the localities – rule of law:

    “Virginia will spend $240,000 over the next year and a half to study court caseloads and develop a plan to redraw judicial districts”

    http://www.fredericksburg.com/News/FLS/2012/042012/04272012/698016

  10. Take a look at Fairfax County’s BPOL tax rate schedule. http://www.fairfaxcounty.gov/dta/business_bpolrate.htm
    One would think all businesses would be subject to the same tax rate. Not hardly. I wonder whether there is any correlation between the lowest rates and campaign contributions!

  11. Spotsylvania made changes to BPOL but did did not eliminate the tax but transferred it:

    ” Revenue from the 11-cent personal-property tax rate increase will cover county employees’ contributions to their retirement plans, and offset lowering the county’s Business, Professional and Occupational License tax ”

    http://blogs.fredericksburg.com/newsdesk/2012/04/25/spotsy%E2%80%99s-car-tax-raises-eyebrows/

    Stafford county to the north completely eliminated the BPOL in 2010 despite DJ’s interpretation of the code to require it:

    http://www2.staffordcountysun.com/news/2010/feb/03/board_repeals_bpol_tax-ar-322882/

    even anti-tax politicians though view removal of the BPOL tax as a loss of tax revenue and given the choice of eliminate the tax and cutting services, they often just raise another tax which calls into question in my mind the whole idea of conservative “no mo tax” types.. basically flinching on their self-avowed principles.

  12. Your comment is awaiting moderation.

    I’m posting my comment to SHOW that it DID go to “moderation” with 2 links.. I’m going to “fix” one of the links and see if it posts ….

    Spotsylvania made changes to BPOL but did did not eliminate the tax but transferred it:

    ” Revenue from the 11-cent personal-property tax rate increase will cover county employees’ contributions to their retirement plans, and offset lowering the county’s Business, Professional and Occupational License tax ”

    http://blogs.fredericksburg.com/newsdesk/2012/04/25/spotsy%E2%80%99s-car-tax-raises-eyebrows/

    Stafford county to the north completely eliminated the BPOL in 2010 despite DJ’s interpretation of the code to require it:

    www2[dot]staffordcountysun.com/news/2010/feb/03/board_repeals_bpol_tax-ar-322882/

    even anti-tax politicians though view removal of the BPOL tax as a loss of tax revenue and given the choice of eliminate the tax and cutting services, they often just raise another tax which calls into question in my mind the whole idea of conservative “no mo tax” types.. basically flinching on their self-avowed principles.

  13. Everyone is in favor of getting rid of taxes, especially BPOL , but this study does not break any new ground; the ideas have been put forth many times before.
    The study gives localities the option of keeping what they have or crossing their fingers, rubbing their rabbit’s foot, and looking for four-leaf clovers believing that the ‘neutral’ General Assembly will come up with a ‘fair’ replacement.
    The study proposes extending sales taxes to various services and then proposes exempting some of those services. Well, I can see it now, “If you are going to exempt X, then it would only be fair to exempt our services, too.” And the piling on begins. At the end of the meat grinder, localities will be left with much less than they had and guess what? Either cut services or raise real estate taxes. But hey, it will all be made up by the hundreds of new and expended business that will appear, regardless of the national economic conditions.
    Peter is correct in that the sales tax is regressive, but so are all taxes in one form or another because in the end the end user pays.
    Another solution proposed by the Senate but not enacted, was a state-funded grant program that reimbursed businesses for the BPOL/merchants’ capital taxes they paid. Sort of like the ‘successful’ car tax elimination, eh?. Since the state spends millions of dollars to subsidize businesses already, what’s a few more bucks? Bosun

  14. Bosun had good thoughts. thanks. (BPOL has arbitrary business specific rates also as shown by TMT).

    There’s at least one more option and that is taxes progressively forgiven in exchange for economic performance.

    This is how Fredericksburg convinced a Wegmans to locate there.

    tax relief if you perform well economically… hmmm…. sounds like a good
    way to get rid of marginal performers, eh?

    the biggest driver behind taxes in Va is education and the ugly truth is that we pay a bunch of money for a mediocre outcome compared to other countries.

    Our education programs are massively comprehensive beyond the core academic subjects – that Europe and Japan consider to be parental responsibilities. You get your free core academic education and if you want to add to it – fine – pay for it.

    Here.. we have a kitchen-sink approach – and it actually diverts money from core academic needs judging from our NAEP/PISA performance against other countries who spend less on education and better us academically.

    but this is what pushes us over the brink on taxes.

    So we basically want the higher taxes because we want our kids to be able to “follow their dreams”…on the taxpayer dollar of course….

    It’s pretty bad when we choose Latin IV or photo journalism over 24/7 fire and rescue but that’s exactly what some localities do.

  15. If you want to see a “tax study” or one that is far more credible that the TJ Institute and its merry band of hack lobbyists put out, read the front page of the NY Times today– Apple jumps through a million inshore and offshore hoops including Reno, Ireland, Caymans and so forth to avoid taxes.
    Here in Virginia, Thompson, Chmura and the gang would increase tax burdens on the poor just to give the business elite a boost. And I’d like to know where all these jobs creation estimates come from — out of thin air?
    Not to worry. Jaimie Bacon will tout this as the best thing since rolled tobacco!

  16. Peter asked: “I’d like to know where all these jobs creation estimates come from — out of thin air?”

    That’s a legitimate question. I didn’t provide details in my post because most people don’t dig beneath the surface. Peter did beneath the surface, and he deserves an answer.

    As I recall (and I wasn’t taking notes during the audio press conference), Chmura Economics & Analytics did the analysis of which business classifications would be affected by an increase in the sales tax on their services. This data was passed along to Beacon Hill, which ran the numbers through its econometric model.

    Mike Thompson will provide more authoritative answers if he can successfully log on to make comments. He tried yesterday but ran into difficulties. Hopefully, he’ll be able to join the conversation.

  17. As for Peter’s other point — businesses jump through hoops to avoid taxes. Well, well, welcome to the real world. We can react to that information in one of two ways. One way, the liberal way, the Peter way, is to demonize businesses for trying to minimize their tax burden — even when they are acting within the letter of the law. People and businesses are peculiar that way — they prefer to keep their own money than handing it over to Peter and his ideological brethren to spend on priorities *they* think are important.

    The other way to react is to recognize that people are, for the most part, economically rational. They respond to incentives. The higher you raise tax rates, the greater the lengths they go to to avoid paying taxes. The lower the tax rates, the less incentive they have to engage in tax avoidance behavior. As it happens, the U.S. now has the highest corporate tax rate among all developed nations. That probably has something to do with the fact that Apple, founded by lifelong liberal Democrat Steve Jobs, devotes so many resources to avoid paying them.

    Back to Virginia… The basic premise of the TJI study is sound. The ideal structure for a tax code is to make it comprehensive — the fewest possible number of deductions, so that it captures taxes from everyone — with rates as low as possible, to minimize (a) tax avoidance behavior, and (b) distortions to the economy.

  18. I’d like to see the job creation estimates also but I have a feeling that it will be a uniformly unsatisfying answer as these things tend to get into what I call swamp data… which is data that is at the core just assertions claimed to have legitimacy by virtue of the “expertness” of someone waving their hands mightily.

    I actually find myself to the right of some on the right when I ask what happens when we tax business because business does not print money. They take in revenues from the sales of their products and services and their profit is what is left after they pay expenses. Taxes are expenses just like employee compensation and the electric bill

    expenses are paid for by customers as part of the price they pay for the product/service – you and I pay for a company’s employees and their electric bill…not the investors.

    I recognize that localities, the state and the Feds – all 3 – tax business and I also recognize that each and every one of us takes advantage of everything in the tax code that lowers our taxes and that includes the corporations who can ‘offshore’.

    You folks know me by now. You know that I am considered a bit of a “leftie” on issues but what I really am (in my own mind of course) is a socially moderate fiscally conservative who throws no punches when it comes to the truth.

    this is why you’ll hear me say that schools are vital but not cost-effective but taxing businesses in the age of globalization seems to be a failed strategy because when a business increases the price of a product to cover the taxes, it puts them at a competitive disadvantages against other companies who produce offshore and don’t have such tax expenses.

    Even the retail commercial sales tax is not paid by the retailer – they just incorporate that tax in the price of what you pay – in effect – becoming stealth tax collectors for the government.

    I abhor the right wing and the organizations that are mouthpieces for the right and I hold special contempt for those that propagandize – like Heritage but TJ on SOME things IMHO puts forth a principled argument and in this case – one might disagree with their recommendation but I think their view has some legitimacy.

    I just don’t think when we go after businesses for taxes that we are really dealing with the real issues because increasing taxes on businesses causes them to take their jobs elsewhere… and taxes on small businesses basically penalizes individuals pursuing entrepreneurial goals – and while most small businesses fail, a few make it and those that make it – provide jobs for people who live in the community – jobs without health care…true..but that’s another story.

    DJ is a businessman but I perceive his attitude on this to be more aligned with Peter so perhaps he’ll weigh in with his perspective on taxing businesses to pay for things like schools and deputies.

  19. In Fairfax County, the BPOL tax is forecast to generate $159.7 M for FY13. Local sales tax revenues are projected at $166.9 M – same period. Uncle Sam provides $34.3 M. Richmond sends $305.6 M, most of which ($211.3 M) comes from car tax reimbursement, which, incidentally, most liberals in Fairfax County opposed, as well as the Lee Hockstetter-Fred Hiatt editorial staff of the WaPo. Personal property taxes are projected to be worth $332 M. Real estate taxes are $2.026 billion. I’ve not included other funds, but total projected revenues are $ 3.459 billion. Source: Advertised FY13 budget.
    I do not oppose taxing businesses even though many costs are included in prices and there is a risk of businesses moving to avoid taxes because society provides benefits to businesses (corporations and other non-sole proprietorship entities). We do need to be competitive in business taxes though.
    What I find repulsive though are businesses seeking higher taxes on others when they don’t pay a significant proportion of them themselves. For example, real estate developers, such as Gerry Halpin and Til Hazel, have been screaming for tax increases for transportation for years (read building transportation by property that they own). Earlier I posted the difference in BPOL tax rates, with developers paying a very low rate. Fairfax County projects developers will pay only $299,065 for FY13. Yet one more sweetheart deal. They also opposed the car tax reimbursement. Hypocritical parasites, IMO.
    As my Dad always said, “Put your money where your mouth is.” Local government in Virginia – the best reason for the Dillon Rule.

  20. When you have high business taxes, you have to ask/beg the General Assembly for “cost to compete” subsidies.
    so here’s Fairfax crying to Richmond that they need money so they can pay their teachers a competitive wage.

    WTF!

    then we have ” car tax reimbursement”… think about this

    who is exactly “reimbursing” …. what? and where are they getting the money to “reimburse”?

    I think Gilmore had a brain fart when he conceived this convoluted approach to having Richmond attempt to take away taxes on cars at the local level thinking this would somehow limit the localities ability to increase other taxes to make up for the loss.

    Gilmore ideas, thank heavens’ are recognized by others as a “problem” and what really amazes me is why the GA continues this charade.

    In fact… why didn’t TJ include that in their discussion… it’s worse than the BPOL tax in my view.

  21. Car tax relief is one of the few state programs that actually returns a decent share of money paid by Fairfax County to Fairfax County. Without it, RoVA would be getting even more Fairfax County tax revenues to subsidize low real estate taxes.

  22. but TMT , BEFORE Gilmore’s scheme, you did not have to depend on Richmond sending anything back because it never went to Richmond to start with.

    What justified Richmond getting involved in it anyhow?

    Would you want them to expand their involvement to include the real estate tax?

    It’s a dumb law… a smoke and mirrors type law…. that has no real purpose or effect other than to throw yet another unpredictable thing in the the process.

    I’m actually surprised that TJ and other conservative orgs have kept quiet about it… It would, in my mind, rank as high as killing the BPOL tax.

  23. The biggest source of state revenues is the individual income tax. Fairfax County supplies between 22-25% of the revenues, but gets back far less than this – say 8-10%, excluding transportation funding. The car tax replacement money sends $211 M back. But for that program, most of the $211 M we get would not be coming back. Car tax relief effectively returns individual income tax funds to Fairfax County and reduces the amount of that tax that can be sent around the Commonwealth. The best thing since sliced bread, IMO.

  24. Bacon,
    You should retitle this blog posting, “Win, Win, Lose, Lose.”

    You are so sickeningly cheerful some times!

  25. TMT – what did Fairfax do BEFORE the Gilmore change?

    I guess I would have though you would have taxed personal property and kept it all..

    I could be wrong..but I’m thinking that the income tax only generates about 1/2 the budget and the sales tax generates an almost equal amount.

    I’m probably more ignorant on this that I need to be. You seem to know the numbers… can you list them out?

  26. Jim,
    When is the Thomas Jefferson lobbyist supposed to answer where he got the “jobs created” number? He has trouble getting on the site? Pull my other leg, it squirts whiskey!

  27. Before the law changed to implement the Gilmore plan, Fairfax County billed the entire car tax and kept the collected proceeds. Meanwhile, Fairfax County residents paid their individual income tax, the proceeds of which were used to run state government and also provide aid to local jurisdictions. It is my understanding that the percentage of car tax reimbursement received by Fairfax County is much higher than the County receives from any other program. The GA capped the car tax relief fund at $950 M. As reported above, Fairfax County expects to receive $211 M and change. That’s about 22% of the entire fund going to Fairfax County. Tell me any other state program that brings that high of percentage back to the residents of Fairfax County. I like it.
    According to the 2011 report of the Department of Taxation, the state collected $9,944,370,000 in personal income tax and $3,012,379,000 in sales tax for the General Fund.

  28. but TMT – are you receiving from the state what you would have collected and kept locally before the Gilmore plan?

    I’m trying to understand how the Gilmore plan benefited you better than before.

    do you really get back more than what you generate?

  29. Larry, I think I see where we’ve mis-communicated. You are focusing on the County per se, while I was looking at the residents too. I agree with your analysis that local governments are merely held harmless by the state. But their residents pay a lower sum to the local government, which is reimbursed by the state mainly from the individual income and sales taxes. Fairfax County residents pay 22-25% of the income and 15-16% of the sales taxes. With most state programs, we get back say 8 to 10%, but with the car tax reimbursement plan, we get 22%. The program effectively is an income tax/sales tax credit measured by a person’s car tax bill. It’s likely the best return from Richmond on any program for residents of Fairfax County.

  30. Okay TMT. I get it now. If you ADD the reimbursement to the state budget doesn’t it actually lead to a tax increase to pay for it? So we hammered Kaine and Warner for tax increases but wasn’t part of the problem the increased state expenses of the “reimbursement”?

    Didn’t NoVa folks have to pay increased income taxes as a result?

    could it have been essentially a zero-sum process?

    If we did something like this for other local taxes like real estate taxes, would you see this as good tax policy for the state?

    I see it as unnecessary and convoluted to basically get the state involved in local taxing policies and to essentially transfer accountable for a local tax to the state and to totally bollix any semblance of transparency.

    it’s a bad thing, not a good thing, even if it had some perceived benefits…in the end.. it made government more complicated and less accountable.

    Do we really want the state to take over collection of all taxes and to “reimburse” the localities ?

  31. The car tax reimbursement reduces the amount of money available for other uses. There is no denying that. I support this for the reasons described above. If it were not for this program, Fairfax County residents would receive less money from the $950 M than we do today.
    From a philosophical perspective, the program is stupid. But there are so many stupid programs in government that screw residents of Fairfax County that I like one that cut the other way.
    I like the job Mark Warner is doing as a Senator. I don’t like all of his votes, but he’s doing a good job. Like DJR, I don’t like the way Warner lied his way into being Governor, by campaigning on not raising taxes and then quickly asking for tax increases. This is dishonest. It is the type of politics preferred by the Hiatts and Hockstetters from WaPo land. It stinks. At least Mondale had the stones to campaign on tax increases. To Warner’s credit, he cut back on the number of state employees. To the negative, he claimed the tax increases would fix the “structural deficit.” Not true, over-spending by the GA and Tim Kaine’s undoing Warner’s employee cuts created another deficit. Virginia has a spending problem, not a revenues problem.
    I was originally thrilled when Kaine campaigned on tying transportation to land use. He was heading for an adequate public facilities law. But Kaine quickly dropped reform for an effort to raise taxes again. He lacked the stones to stare down the development community.

  32. and I’m with Peter here… where is the job creation study and why was this not provided as a clickable link in their study to start with?

    I’m a bit of a skeptic anyhow on claims of job creation when data shows that about 70+% of small businesses have one employee who these days is often selling services rather than products.

    If you tax services, doesn’t that decrease job creation?

  33. “From a philosophical perspective, the program is stupid. But there are so many stupid programs in government that screw residents of Fairfax County that I like one that cut the other way.”

    geeze TMT.. isn’t this attitude the reason why we have a screwed up govt to start with?

    can you imagine a state where localities do not collect taxes and only the State does and that’s the primary strategy for control of tax increases?

    “I like the job Mark Warner is doing as a Senator. I don’t like all of his votes, but he’s doing a good job. Like DJR, I don’t like the way Warner lied his way into being Governor, by campaigning on not raising taxes and then quickly asking for tax increases. This is dishonest”

    Is it possible that Warner woefully underestimated just how corrosive the “reimbursement” scheme would be to state finances or perhaps he thought he could have it undone to free the state from it’s damaging effects”?

    I think what Gilmore did was far, far more damaging that what Warner did.
    All pols make promises but the key issue is what got paid for with Warner’s tax increases and would we have been okay with the cuts that would have happened if taxes were not increased?

    McDonnell promised to fix transportation without increasing taxes then turned around and tried to get more taxes out of alcohol and offshore drilling… then borrowed the state to the hilt of it’s AAA rating and committing to paying it back with tolls.

    When McDonnell leaves… will the next gov really understand the effect of what McDonnell has done to the state budget any more than Warner understanding what Gilmore had done?

    It seems to me that the GOP gets into office and screws up the budget with some totally off the wall schemes that are fundamentally smoke and mirrors stuff .. treads water until the end of their term and then the next guy has to figure out what happened and how to get it back together because the guy in front of him failed to actually confront the tax vs needs challenges.

    Gilmore and McDonnell evaded the real problems… with half-baked schemes and back-loaded games…. IMHO of course.

  34. Mark Warner is too smart and experienced to have under-estimated the Commonwealth’s fiscal condition when he was running for Governor. He spoke one thing and planned to do another. If Warner was not sure of the fiscal situation, he should not have made his commercials saying he opposed tax increases. If he was concerned about revenues, he should have campaigned on that issue.
    McConnell’s transportation plan is identical to that of Tim Kaine except McDonnell’s accelerates the sale of bonds. If you don’t like McDonnell’s, why did you like Kaine’s? Terry McAuliffe was caught lying about this one. http://www.politifact.com/virginia/statements/2011/may/18/terry-mcauliffe/terry-mcauliffe-says-virginia-has-no-repayment-pla/

  35. re: Warner’s tax plan. I think Gilmore, Warner, Kaine and McDonnell have played equivalent budget games. Gilmore convinced the GA to take on the budget burden of the “reimbursements” which squeezed future budgets (and still is). Warner / Kaine make less than wonderful tax promises but McDonnell has done the same thing only in a stealth way by increasing fees and approving tolls.

    I happen to prefer the fee/toll path over taxes especially to keep the VDOT slush fund from accumulating money for developers but at the end of the day… I think all four of them actually did increase spending.

    If we could roll back Warners and Kaine’s increases what would be taken away? K-12 and higher Ed, right?

  36. Fairfax County was raped by the Warner tax increases. Net cost to residents of the county for the first year was $107 M. Fairfax County Public Schools received about $7 M in new money as a result of the tax changes. Sources: Virginia Senate Finance Committee & FCPS. Chris Braunlick, a former school board member from Fairfax, examined state data and found 49 counties and cities were able to reduce their local tax support for public schools because they received more money from the Commonwealth. And now, 25% of all FCPS students are on free or reduced-price lunches.
    I sure as all h*** would undo that one if I could.
    What makes it worse, in my mind, is that Democratic Delegates Steve Shannon and Chap Petersen attempted to hold out their votes for the tax increases unless the new aid for schools was parcelled out on a per student basis. Of course, the rest of the Democrats and the two-bit business community sold them out. Yeah, I’d undo Warner’s tax and spending changes.
    Higher ed, even Obama agrees that higher education needs to cut. They increase prices well above inflation every year.

  37. TMT – it’s hard to believe that 25% of Fairfax falls below poverty levels. The school that my better half teaches has 50% of their kids on subsidized lunches. I’m quite sure that using the same criteria that rates Fairfax at 25% would rate much of RoVa at 50 or even 75%.

    NoVa also receives a “cost-of-living” subsidy. Is that accounted for in the “Fairfax gets screwed” calculations?

    If Warner screwed Fairfax how come Fairfax loves him?

  38. Fairfax County has the largest number of low-income people in the state. According to FCPS, the income level for a family of four is $41,348. This is a federal standard. I don’t know whether cost of living is used such that the formula varies around the state and the nation. I was told about the 25% figure this by a school board member and by the FCPS CFO this January.
    As far as loving Warner, people living here are generally very unsophisticated about state and local government with respect to education. And when someone tells them “we need to raise taxes for education,” most are too clueless to ask how much do I pay and how much do I get back. I think they are more sophisticated about land use and transportation. Most people I’ve run into think developers run the show. They aren’t as ready to trust on transportation as they are on education, IMO.

  39. 41K in southwest Va would be living high on the hog. Cost of living is a significant component.

    Clearly NoVa is a high cost of living area as compared to much of RoVa.

    here’s the list:

    http://www.doe.virginia.gov/support/nutrition/statistics/free_reduced_eligibility/2011-2012/divisions/frpe_div_report_sy2011-12.pdf

    it verifies that you are correct but take a look at the RoVa rates.

    re: education, taxes and Fairfax.

    well Fairfax itself spends locally (and taxes locally) way more that most other jurisdictions in the state.

    Taxes in Fairfax contribute mightily to the poverty rate. heavy taxes contribute to the plight of those who work in the service sector – and their kids.

    Many of those on subsidized lunches in RoVa are there because of unfortunate circumstances of being born in an area that is economically depressed with minimal opportunities for work for the parents.

    In NoVa, work is available but it does not pay near enough to afford reasonable shelter.

  40. After three tries, and three different Pass Codes, I am allowed into this discussion!
    Peter either is not reading the study, misreading it, distorting it on purpose, or more likely missed the days of high school algebra where we were taught that changing the variables of an equation changes the outcome of the problem being resolved. Read the study and you will see that there are nine different scenarios that are outlined each using a different set of variables. So of course the outcomes will be differnt. And as the study shows, depending on the scenario you read and depending on the variables used, there are scenarios where the working poor would be far better off than they are today. There is a scenario where the bottom two tax brackets of the Virginia Tax Code can be eliminated. These are the lowest income people in the state who are required today to pay taxes. This tax study included the state’s top independent economist, Dr. Christine Chmura, and the economic model (a dynamic model that shows how the economy changes due ot tax policy — a fact that has been proven over and over again but one Peter seems unable to grasp. Again, he likely missed those classes in high school so this is not his fault.) was built by the teh economists at Suffolk University including the Chairman of its Economics Department. These are hot slouches and Peter ought to stop denigrating them and simply admit that some top notch folks were involded in this tax restructuring study that he does not like for whatever reason. And that reasoning seems to be based on reading a study other than ours. The Jefferson Institute study on tax restructuring is clear and easy to follow — except for Peter who simply has decided that he does not like our work, period. He certainly has that right, but it does get to be tedious when he seems to go out of his way to misrepresent what we are saying and the ideas we are bringing to the table of public debate. There are too many folks in the state, and outside of Virginia, who agree with our study and who are reviewing it for it says and not what it does not say, to spend time respondign to Peter’s rants. For instance, a top notch Georgia economist told the news conference on Friday that the ideas included in our study would make Virginia much more competitive and put a state like her’s — Georgia — in a very difficult position to compete with us. For those who are reading all of these comments, read the report an dread my column on the study. Peter seems to have read something different. Our report shows how tax restructuring here in Virginia could be crafted to dramatically improve our economy and create a lot of jobs — jobs for those who do not have them today. And in a couple of the scenarios that we ran, the working poor can be substantially helped. These are good things.

    Mike Thompson

  41. Fairfax economic and development policies do not support a healthy mix of affordable housing stock for those who work on the lower rungs of the economic ladder, particularly those in the service sector.

    It would be interesting to take a closer look at the demographics of the 1/4 of all kids in the Fairfax school system that are on reduced or free lunch.

    Also compare that rate to other Northern Va jurisdictions…

    To be fair, is it possible Fairfax is ATTRACTING those folks because of it’s entitlements and good schools?

    People will do a lot to see their kids get a good education.

  42. Thanks for the link, Larry. :)

  43. Hey Waldo! I’d like to see Bacon devote a thread to your work!

    Perhaps you can explain how…after the GA quits.. the process for updating your code.

    Va Decoded is a awesome tool and once the word gets out. I’m convinced it’s going to become the “go to” place for the Va Code.

    Congrats, Waldo!

  44. After reading Mr. Thompson’s comments, I went back and re-read the “study”/press release.

    My comments:

    1. – footnotes, footnotes, footnotes

    2. – no substantiation of the job numbers. If it is tax neutral, then any jobs gained from reduction of one tax would seem to be lost for increased taxes.
    there needs to be a discussion about why this is not true.

    3. – there are not numbers… especially for the counties…

    4. – this sounds a little like Gilmore’s plan where the state will make each county whole no matter if the tax trade does not result in equivalent revenues. I do not like the State doing this. I’d much prefer that the do away with BPOL and then give each locality some ability to recover it with out taxes of their choosing in consultation with their voters. This is a way to evade local accountability for how to replace the tax. TJ is suggesting that the state do this and I think it’s wrong twice.

    Even better would be for the state to let each county have a referenda on the issue. We do not want the state running this show.

    these decisions need to be local – not state. An organization that uses Jeffersons name and claims his principles should follow them…eh?

  45. The tax model has been used all over the country in several states quite successfully. It has been used here in the past as well with praise from both sides of the political aisle. The numbers used are from the work that Chmura Economics used and various state numbers. How the model works is detailed in Appendix III of our study. I am sure the folks at the Beacon Hill Institute would answer any questions. Dr. Chmura worked with us and Beacon Hill Institute at Suffolk Univeristy in this collaborative effort to show what could happen if we merely rearranged the taxing system in our state. The BPOL tax is a local tax as is the Machine and Tool tax — authority provided by state law and so that authority would need to be taken back. We can deal with the real world to accomplish real world good or we can argue theory. In theory I agree that government closest to the people is best. Sadly that is not always the case in the way our governmental system is set up in Virginia. Under the real world, and that is why the Jefferson Institute considers itself a “solutions tank” rather than a “think tank,” we need to look at what can be accomplished that creates a better economic outcome here in the Commonwealth. The ideas outlined in our study provides a path to this end. If there are better ideas that can be substantiated through a serious tax model as we have developed, we are open to it. We have opened this discussion and if there are better ideas, let hear them.

    Mike Thompson
    Thomas Jefferson Institute

  46. I do not see the appendix on the version that Jim has linked to.

    can you provide a link to the appendix and the job creation study?

    If you are going to base your premise on something – the burden is on you to substantiate it – not the reader.

    If cutting taxes creates jobs then why does trading one tax for another not also destroy jobs (when taxes are increased?).

    re: better ideas

    I think it is a bad idea for Va to take over taxing powers for a locality and to take over actually taxing the local residents for local spending.

    the job of the state is to insure that the localities have transparent taxing and budgeting so that local voters can hold them accountable for it.

    When you move this to Richmond, you are basically muddling the transparency and removing accountability from the local elected.

    the “better” idea is for the state to offer each locality that trade and let each locality hold a referenda to decide.

    that way, you have an honest discussion among local voters – which increases transparency and accountability for taxation.

    What you are advocating is going to further exasperate the perception that Richmond is taking money from one locality to give to others.

    we should be moving away from that – not doing more of it.

    so.. I AGREE, we ought to get rid of those 3 taxes – either do it unilaterally and let the localities deal with it via other existing taxes or offer the locality the right to tax services in lieu of it but don’t put Richmond in charge of local taxation.

  47. I’d also be curious as to Mike’s opinion about the Gilmore car tax.

    I see it as very similar to this proposal and I think both are terrible ideas that submerge transparency of local taxation. Now days.. the “reimbursement” just appears in the local budget and the local voter has almost no idea how it works now.

  48. I went to the TJ website where they DO have the appendices which I am now going through but I still point out that the primary document does not footnote the assertions and premises to where they are substantiated in the appendices.

  49. Okay, I’ve gone to the appendices.

    My comments don’t really change.

    the only explanation for the assertions is the generic model.

    the model says … basically that taxing services will bring in not only enough
    money to offset the BPOL and M&T taxes but to actually reduce the overall sales tax rate AND it will create jobs.

    the “model” is a complex mathematical model that produces results that seem counter-intuitive.

    For instance, I might buy that increased BPOL taxes decreases job creation by why does increasing taxes on services not have the same effect?

    If the transferred taxes is revenue neutral – why is job creation not?

    this needs to be explained in common sense terms instead of saying “the model said this”.

    I am still not understanding how this affects income taxes and reduces taxes on those at the lower rungs of the ladder. Is the premise that increased sales taxes on services will allow the state to reduce income taxes for some people?

    but again.. let’s assume it does but the poor pay increased taxes for services that now have sales taxes on them.

    are you not just trading taxes on income for taxes on services? isn’t the net affect the same?

    I’m trying to honestly give this a fair hearing here… and I’m open to substantive explanations beyond “the model said so”.

    Finally, I recognize that the State right now collects sales taxes and then distributes the locality’s and schools “share” back to them but the scheme
    for keeping the counties ‘whole’ by having the state figure it out – basically means they are also taking money from some localities that benefit proportionally more from the increased sales taxes to localities that are penalized by it (the ones who currently don’t have BPOL).

    I think Mike needs to fairly address the questions instead of saying “the model did it”.

  50. Re Thompson’s response:

    He still fails to explain his models. He does not provide information about where the greatly varying “jobs” creation will come from but vaguely says they are respected state models or somesuch. He says “top notch” economists are on board with his plan, but he doesn’t name them or provide their credentials.
    What he and his institute have produced is intellectually inferior and an inadequate basis for changing taxes. It is basically tax shift, not elimination, and its underlying philosophy is to prop up business interests at the cost of people less able to pay taxes. His study seems to say that “income taxes” on the poor would be “eliminated” but they would have to pay increases in sales taxes which would actually be far tougher on them.
    As far as personal attacks on me, Thompson knows nothing about my background and it isn’t relevant.

  51. Okay, the verdict is in….. we appear to be playing data swamp here…

    If a tax-change is revenue neutral how does that create jobs on the side that reduces the tax and not lose jobs on the side that increases taxes?

    and no.. I won’t believe you if you say your model “proves” it.

    if your model was correct, … we could switch other taxes this way and create tons of new jobs… Heck.. we could get rid of business property taxes altogether and transfer that to sales taxes and create even more jobs…eh?

    if your premise is that somehow increased sales taxes kills less jobs than business taxes, you gotta make that assertion (I did not see it), and you have to show HOW it works by showing the jobs gained and subtract the jobs lost or some similar calculation …you have to show the underlying premises that your model is using and demonstrate them for one or two existing examples.

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