When’s the Last Time a Virginia Governor Proposed a Business Tax Cut?

mcauliffeGovernor Terry McAuliffe announced yesterday a package of tax cut and credit proposals to improve Virginia’s business climate and stimulate economic growth.

A proposed reduction in the corporate income tax rate from 6% to 5.75% would generate nearly $64 million in tax relief for Virginia businesses over two years, while other proposals would create incentives for research and development and early-stage financing, including:

  •  Creation of a new R&D Tax Credit with a $15 million cap to benefit companies spending more than $5 million annual in research spending.
  • Increasing the statewide cap for an existing R&D Tax Credit by $1 million to $7 million.
  • Increasing the cap on Virginia’s Angel Investor Tax Credit by $4 million to $9 million.

The proposals come at a time when Virginia’s ranking in national business climate surveys has fallen steadily from a once-lofty perch. In a press release, McAuliffe specifically cited competitive pressure from North Carolina, a perennial rival in the competition for corporate investment, which has reduced its corporate tax rate from 6.9% to 5% in the past two years. The rate is scheduled to drop to 4% next year.

Bacon’s bottom line: While these tax cuts may be regarded as incremental and “small ball” in scale, they are cuts. Virginia has seen little but tax hikes over the past decade. Add up these initiatives, and they amount to $84 million. When’s the last time Virginia cut business taxes by $84 million? I can’t even remember. Good for McAuliffe.

One more point: The governor, who loves to wheel and deal, could have proposed an increase to the Governor’s Opportunity Fund, used to sweeten corporate investment deals, but he didn’t. As his press release notes, “The broad-based tax proposal will provide significant benefits for all corporations rather than selecting winners and losers.” Once again, good for him.

Update: Michael Cassidy with the Commonwealth Institute reminds me that there have been several business tax cuts/credits over the past 10 years: elimination of the estate tax ($140 million annually), cutting estate tax for multi-state manufacturing companies ($59 million annually), sales tax exemption for data centers ($7 million annually), and film tax credit expansion ($6.5 million annually).

— JAB

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33 responses to “When’s the Last Time a Virginia Governor Proposed a Business Tax Cut?

  1. Sounds good as Virginia needs to broaden our industrial/business base. And as the federal budget is certain to be cut significantly in the near future Virginia need a variety of options and this is one. We also need centers focusing on high tech flexible manufacturing training and a big boost for university research. I would argue for a focused free community college education for focused students like Tennessee and Oregon have just done.

  2. Again…hate to sound like a broken record….but McAuliffe has exceeded all expectations I had for him.

  3. I like the broad-based approach, rather than the special deal tactics of the Governor’s Opportunity Fund. The best thing that happened to McAuliffe was not getting more power in the General Assembly so he can focus on operating state government in an efficient and effective manner and supporting economic development.

  4. I pretty much agree with both Jwgilley and cville resident.

    McDonnell had so much promise but had terrible judgement about his own ethics and behavior.. to the point of encouraging his chef to steal in lieu of payment for catering and it went downhill from there.

    a real tragedy.

    McAuiffe OTOH pretty much oozed probable sleaze.. as he took over Governor.

    However – from what I’ve read the business community is not as thrilled and criticize that most businesses are small businesses that file as individuals.

    and I’m quite sure those same folks would oppose free community college which is pretty much a no brainer in the 21st century if anyone expects those not bound for 4yr college to find jobs in the economy, and not need entitlements.

    we should be thinking K-14 … not K-12… or we need to substantially overhaul how we do K-12 education right now – which pretty much is a winners-losers proposition where those bound for 4yr are winners and those not – are screwed – along with taxpayers who will pick up their entitlements.

  5. Not impressed. Give taxpayers, the regular Joe on the street a break. You can give it to business but if we can’t afford it, we aint buying the products.

    NC also has good health systems and an excellent network of huge roadways, neither of which McAwful has done anything with. He’s given the power to huge medical corporations and hoosed over the taxpayer by refusing to follow the US Supreme Court mandate to dump the MD loaded state medical boards.

  6. What an unexpected surprise! Jim Bacon as a modern day Rip Van Winkle!

    When you say “Virginia has seen little but tax hikes over the past decade” it seems you’ve missed the following parade of tax cuts in Virginia:

    The elimination of the estate tax (2006) annual cost: $140 million.

    Slashing the corporate tax for large multi-state manufacturing companies by adopting the single sales factor (2009) cost: annual $59 million.

    Sales tax exemption for data center (2011) annual cost: $7 million.

    Film Tax Credit (2010; expanded in 2014) annual cost: $6.5

    And that’s to just name a few.

  7. Cut rates and raise revenue collections…sounds Republican to me.

  8. well heckfire – we should list out each and every cut – and how much more revenue was collected when they were cut!

  9. Here’s an interesting look back:

    Bob McDonnell on Tax Reform

    http://www.ontheissues.org/Governor/Bob_McDonnell_Tax_Reform.htm

  10. You may hear the sound of one hand clapping from the business community until more details are revealed in the full budget presentation on December 17. It is expected that the Governor will bake into that budget the Medicaid expansion and several assumptions of new revenue from that, revenue which allows for things like tax cuts and some new initiatives – many of which will have great merit. Merit or not, they will get entangled in the Medicaid debate.

    Friend Cassidy hates to see the government pass on any opportunity to tax. And he is right to point out that Virginia has changed some tax provisions in recent years to benefit business. But Virginia does need to keep an eye on the corporate tax rates in other states. The gap between VA and NC is getting to a point where it really will matter in the future. But if that is true, a 25 basis point cut in the rate won’t really close that gap. And of course there remain many other states with no income tax – Tennessee is the closest.

    Remember this basic fact: businesses pay no taxes. Only people pay taxes. Impose a tax on a business and it will be paid in one of three ways – usually by the customers, often by the employees as it creates pressures on employment and wages, and in rare cases by the stockholders in the form of lower profits. But businesses will find ways to prevent that if they can. The trick is to find changes in the tax code that work in reverse – first lowering costs to customers, second stimulating employment and wages, and avoiding the tax cuts that merely add to a company’s profit.

    • Steve, I want to commend you for delving more deeply into the statement “businesses don’t pay taxes,” which is often interpreted into “businesses always pass along taxes in the form of higher prices.” While that is often the case, the market determines when, and to what extent, businesses can pass along cost increases. Many times, however, higher costs of business are passed along to employees in the form of frozen wages or small increases. And sometimes, the shareowners eat the higher taxes in the form of lower earnings. The market is more complex than slogans. Thanks!

    • I’ve always felt that taxes on business get passed on as embedded expenses that customers/taxpayers end up paying.

      but I don’t agree it necessarily chases businesses to places with lower corporate taxes.

      there are other factors that play into it.

      If taxes were the only criteria – high tax states like California and New York would chase away businesses – not just some – but the majority so that they’d end up not number 1 or 2 with defections to Texas but number 49 and 50 …bottom of the heap, complete abandonment – only the trapped remain behind!

      I’m not advocating taxes on businesses – but a pragmatic assessment suggests that it’s not that simple.

      I’d also more than agree – if taxes – of any kind – make the difference between whether a job-providing enterprise locates in Va or not – dump those taxes poste haste – like New York has done – in some regions that need jobs.

      to me, it’s a simple calculation. If an employer is willing to move to a place in Va where jobs or provided that save Virginia from paying entitlements for unemployed… do it.

      I still think the MedicAid thing is a no brainer in terms of economic development.

      if those 30,000 net jobs came from deficit-financed military jobs – we’d fall all over ourselves saying yes.. even if we knew it added to the deficit and those jobs could go away with future DOD cuts.

      we have a certain amount of hypocrisy in the way we’re dealing with the Medicaid thing.

      take the money. take the jobs. those jobs reduce entitlements… and provide jobs in areas that have no jobs…. do it.

      If Congress cuts Medicaid – do the same thing we’d do if they cut DOD money – take the jobs hit and move on.

    • The WaPo’s coverage yesterday suggested that this proposed business income tax cut is simply a gambit to win support for Medicaid expansion, by “pre-committing” where some of that revenue will go. I don’t understand this: if Medicaid expansion occurs, the feds say they will reimburse all/a portion of the cost; but how does that ‘create revenue’ for a business tax cut? Or is this simply the Governor saying he’ll squeeze the budget elsewhere and throw in a tax cut IF the GA gives him his medicaid expansion?

  11. I had a fascinating conversation with a friend of mine who just moved back to Maryland from Texas. I chided him about how much more he would pay in taxes now that he was living in Taxaland. He schooled me in how Texas actually raises it revenues – real estate taxes for example. Other than places like Nevada which might raise a significant percentage of revenue from tourism, the states all get their money from the people. It’s just a matter of how.

  12. ultimately – funding of govt comes from individuals … BUT

    as Don, intimates take different paths :

    FY 2016 Va budget:

    Corporate income $771.6
    Individual income 12,036.1
    State sales & uses 3,292.0
    Insurance premiums 326.8
    Wills, suits, deeds & contract fees 318.3
    Miscellaneous 714.5

    Total revenues $17,459.3

    of that 17 billion – 15 billion comes from individual income tax
    and general sales tax

    corporate tax is 750 million less than 5% of the total budget.

    http://dpb.virginia.gov/budget/buddoc15/parta/revenueforecast2015.pdf

    now – the ENTIRE budget is $48 billion.

    yes.. you heard that right

    $26,716.8 billion comes from “other” sources, 10 billion of that from the Feds of which corporate taxes are a similar small percentage of the overall budget.

    something I observe in general – my opinion, which I acknowledge others may disagree with – – when it comes to taxes, health care, education, transportation – it’s not so simple –

    but it’s easy to have an opinion!

    😉

    I doubt seriously, for instance, if you asked 100 Virginians what the total dollar amount is for the Virginia budget is – that less than 5 would know much less people knowing the further details.

    this is one of the reasons why I find BR a notch up (or more) over other blogs… it actually does get further into it and there are more than a few informed commenters…

    • Taxation of corporations does, indeed, represent double taxation. However, corporations are legal persons and do obtain benefits from government. Therefore, I think a reasonable corporate income tax is fair. Of course, the devil is in the details.

      • Interesting that the very basis for taxing corporations is that they are legal persons. Isn’t this also the basis for the Citizens’ United decision? I wonder how many liberals would give up the right to tax corporations in order to secure a basis to restrict those corporations from exercising free speech in the form of political contributions via PACs? Personally, I’d be more than happy to stop taxing corporations in order to muzzle them in the political arena so long as we muzzle not-for-profits, unions etc. I realize that I would have to be among those who “picked up the slack” in funding government through taxes but it would be worth it.

  13. let me ask – is a Corporate tax in essence and/or works like/is a kind of a VAT – value added tax, that – all things equal for that type of business (all subject to the same tax) – it just gets embedded in the costs of goods and services paid for by purchasers?

    Could one argue – that such taxes – actually encourage more competition and more efforts at efficiency to keep prices lower?

    • Larry, very interesting observation. One worthy of some thought and conversation.

      My initial reaction is that it all depends on the level of competition and the overall strength of the economy. A competitor desiring to increase market share or enter a new market may well decide to set prices at levels that effectively internalize the cost of a corporate income tax to keep prices lower. If there is sufficient competition in the market segment, the market leader(s) should do likewise.

      • TMT/others

        do you differentiate in taxes on corporations

        1. revenues

        2. profits

        are taxes on ALL corporations revenues DIFFERENT than taxes on only Corporate profits?

        • Are there taxes on corporate revenues? Other than sales tax (which is generally charged to the customer) I am not aware of any such taxes in the United States but it’s been 35 years since I last studied accounting. I guess Virginia’s BPOL taxes would fall into a tax on revenue at the state level.

          I found this – http://www.fairfaxcounty.gov/dta/business_bpolrate.htm

          The rates tend to vary based on the relative profitability of the business category. So, this is a profits tax masquerading as a revenue tax. My understanding is that this tax was adopted to help pay for the War of 1812. No kidding.

          I am not sure if these taxes are set by state or county. Either way, reserving the highest rate for research & development businesses is just another example of the empty-suited buffoonishness of our political elite.

  14. How much is the state government spend $/individual from all sources?
    And how does that compare with the wealth per person in the Commonwealth?
    Might be interesting.

  15. wouldn’t that be about 48 billion divided by 8 million, about 6k per capita?

    I dunno how you calculate total wealth of all citizens in Va…

    is that a metric that relates to things?

  16. Might be a way to compare Virginia to our competitor states.

  17. I have sent JAB the link to answer some of those governmental/income questions with hopes that a future blog will discuss this. There was a story in the RTD about the state’s projected GDP growth running at something like up 0.02%…and for the past decade VA’s growth has been running at half the US rate.

  18. indeed – https://en.wikipedia.org/wiki/List_of_U.S._states_by_economic_growth_rate

    without the Fed money in NoVa and Hampton, Virginia would likely be dead last.

    • According to a respected person in economic development in Northern Virginia, the state lacks risk takers. Lots of very bright people who are adaptable, but fearful of the risk of failure.

      • Of all the absurd things your friends in government have told you this is perhaps the most absurd.

        What Virginia lacks is competence in government, especially in the category of economic development. Having the state’s three highest rated universities in small towns far from urban centers is a big problem. Being #20 in total state capital gains taxes is another. No legislated restrictions on employee non-competes is another. The list goes on.

        The idea that 8 million people randomly brought together in a geography that is an accident of history have a systematic aversion to risk is absurd in the extreme. That fact that your friend in economic development made such a statement says all that needs to be said about the quality of the people working on economic development in Virginia.

    • Good LORD!

      ” … metaphors used Friday at the Virginia Chamber of Commerce’s sixth annual economic summit in Williamsburg.”
      ..
      “…an economy hampered by federal spending cuts,”
      ..
      ” The villain in this scenario is stagnant or declining federal spending, especially defense spending,” the report says.”
      ..
      “… Federal procurement spending in Virginia declined by more than $30 billion, or about 33 percent”
      ..
      ” … The “glass half empty” view is backed by stagnant wages, the federal budget deficit, the risk of deflation, and a persistent gap between the nation’s potential economic output and its actual output, which he blamed primarily on burdensome federal regulations that discourage business expansion.”

      blaming “burdensome” regulations for Virginia’s bad performance relative to other states?

      really? it seems Conservatives (which I assume the COC is thoroughly infested with and who fostered this “study”…. can’t even keep the “bad bad regulations” story even remotely consistent with reality…

      They openly decry the loss of Federal dollars to provide jobs even as they blame the Feds regs… as if they only apply to Va and not other states.

      I’m NOT a PRO regulation guy – but when I read and hear something like this – I want to KNOW – Specifics – what regulations… because like the myth of cutting taxes generating increased revenues – it’s at best a flimsy article of faith never backed up with real data – it’s like reciting the rosary or saying 10 “Our Fathers” to bring on those good things if we believe enough in them.

      There was ONE THING in the report that did give me some hope that at least some of them actually do know what the issue really is and might support things that could change it though, as usual they are short on details, how it gets done and who pays.

      ” …. changes in labor force participation are a drag on economic growth,” he said. “So we need to re-integrate individuals that have dropped out of the labor force.”

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