Category Archives: Taxes

The Fiscal Benefits of Smart Growth

Posted on May 21, 2013 by James A. Bacon| 10 Comments

better_budgetsby James A. Bacon

Compared to conventional suburban development, smart growth development can save 38% in up-front infrastructure costs and 10% of the cost of supporting police, ambulance, fire and other public services, according to a new report by Smart Growth America (SGA). At the same time, concludes “Building Better Budgets,” smart growth generates 10 times more tax revenue per acre.

In 2010, state and local governments spent $1.6 trillion, including $525 billion on projects and activities heavily influenced by human settlement patterns and another $250 billion on capital projects. Apply the SGA findings to those numbers and the implication is that adopting smart-growth strategies could save state and local governments $100 billion or more per year while simultaneously bolstering revenues.

Smart growth advocates have long claimed that compact, walkable, mixed-use neighborhoods are more fiscally efficient for local government than conventional suburban development characterized by low-density and segregated land uses. While anecdotal evidence is abundant, it has been difficult to back up smart growth claims with comprehensive data. For this report, the SGA conducted a meta-analysis of 17 case studies comparing smart-growth to conventional surburban scenarios over the past 10 to 15 years.

“In case after case, localities determined that smart growth reduces costs,” the report concludes. “In some cases the savings were modest, in some cases the savings were significant.”

The reason for the savings in capital cost is straightforward, explained Bill Fulton, SGA vice president and director of policy, in a Tuesday conference call. Smart growth consumes less land. Because smart growth is more compact, it requires fewer lane-miles of roads and fewer linear-feet of water and sewer line.

The savings in operating costs are almost as direct. The cost of delivering services such as fire, police, rescue, snow plowing and school busing varies in proportion to how much driving is required. The fewer the number of miles that vehicles drive, the lower the cost of services, Fulton says. There is a second layer of savings as well. More compact development can reduce the number of cars, trucks and even the number of stations needed to serve a given population.

For instance, a Charlotte, N.C., study found that fire stations could maintain their five-minute response times for more households in areas with compact development and strong street connectivity than in low-density suburbs with cul de sacs. The initial cost of building a fire station is about $6.5 million and the annual cost to operate it is about $2.5 million. The number of households served by each of the city’s fire stations ranged from 6,000 to 27,000 and the annual operating cost varied from $159 to $750 per household. If Charlotte were built out according to smart growth standards, the city could eliminate the need for two fire stations at a savings of  $13 million per year and $8.4 million in annual operating expenses.

Chris Zimmerman, a member of the Arlington County board, credited the county’s steady pursuit of smart growth (even before it was called smart growth) over the past 40 years for the lowest property tax rate of any Northern Virginia county. Eleven percent of the land built around Metro stations contributes about half the county’s tax revenue. The resulting revenue gusher since the 1990s has allowed Arlington to spend more freely than its neighbors on public services.

“In tax terms,” said Zimmerman, “we’re eating their lunch. We’re known as the People’s Republic of Arlington — not shy about spending public dollars. We spend more on our schools than anyone in sight, pay more for teachers and principals, and yet we have the lowest tax rate in Northern Virginia.”

A Nashville, Tenn., study conducted for the “Building Better Budgets” report compared three developments in Davidson County: Lenox Village, a greenfield New Urbanist project; Bradford Hills, a conventional suburban development; and The Gulch, a downtown infill development. The New Urbanist development was the most cost efficient at $1,300 per year per unit to provide government services, followed closely by The Gulch at $1,400 per unit. Bradford Hills, the suburban project, cost $1,600 per year.

A fiscal analysis conducted by the Strategic Economics consulting firm determined that at full build-out, The Gulch would have a net positive impact on the Nashville-Davidson metropolitan general fund of $116,000 per acre. Lenox Village would have a positive impact of only $780 per acre, and Bradford Hills was essentially break-even at $100 per acre.

To facilitate walkable, mixed-use development, Nashville has implemented form-based zoning codes downtown and along major corridors, said Rick Bernhardt, executive director of the Metro Nashville Planning Department. “If you compare over the last eight years, the value of appraised property in Davidson County is up 30% — 115% in areas where we put new codes in place.”

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Posted in 2013, Budget, Infrastructure, Land use & development, Taxes, Transportation

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The Cooch’s Freak Show Dream Team

Posted on May 21, 2013 by Peter Galuszka| 6 Comments

cooch dream teamBy Peter Galuszka

Ken Cuccinelli just can’t keep away from the bizarre, but perhaps that’s what makes him what he is.

He stages a convention instead of a primary to neuter Bill Bolling. And since a convention is smaller, it draws more GOP hard-righters than  June bugs on a humid night and they succeed in getting Bishop E.W. Jackson and Mark Obenshain selected. They underline the social conservatism that turns millions off and makes Virginia the butt of jokes on late night talk shows.

The Bishop is an even bigger gay basher than Cuccinelli and says that Planned Parenthood is responsible for more fatalities among African-Americans than the Ku Klux Klan. This may be new to a Harvard Law graduate, but women of any color have a legal right to an abortion within limits. The U.S. Supreme Court said so. Look under Roe vs. Wade.

Then there is the attorney general candidate Mark Obenshain of the legacy Republican family. He proposed and withdrew legislation to require any woman in Virginia who miscarries a pregnancy to report it to the police. The idea is so repulsive it is beyond words. A woman may have miscarried to her great sorrow due to medical reasons and then would have to go through the added horror of having to report to the police? Yes, this comes from a cabal that otherwise wants to keep the government out of your lives. Even Josef Stalin wouldn’t think of this.

What does the dream team have to say on the many policy issues facing a troubled state? We have a bunch of lame and poorly thought out tax cuts and Cooch playing hardware store populist. Cuccinelli was against McDonnnell’s mammoth road building tax plan and has since backed away from his opposition.

Is this good news for Terry McAuliffe, who has plenty of issues of his own? Yes, I would think. Cuccinelli doesn’t need the fringe hard right voters. He’s already got them in his pocket. He needs the center and Mark and the Bishop aren’t going to be much help there.

It boggles the mind how Virginia is so schizo. It is attracting hundreds of thousands of newcomers who are running the state’s economy and are dragging it into the 21st century world. Yet the Republicans put up people like this who aren’t dragging us to Virginia’s recent dark past but to medieval times.

Global investors might think twice or three times before investing in this freak show.

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Role Reversal: Poverty Increasingly a Suburban Phenomenon

Posted on May 21, 2013 by James A. Bacon| 8 Comments
Houses with boarded-up windows in Henrico County

Houses with boarded-up windows in Henrico County

by James A. Bacon

Mirroring national trends, poverty in Richmond region suburbs has grown far more rapidly since 2000 in suburban counties than in the City of Richmond, according to the Richmond Times-Dispatch, reporting numbers published in a new book, “Confronting Suburban Poverty in America.”

Writes the T-D’s Graham Moomaw: “From 2000 to 2011, the number of poor people in Richmond-area cities grew by 30.5 percent, while the number of poor in the suburbs grew by 69.8 percent, according to the study.”

The poverty rate still remains roughly three times higher in the city compared to outlying counties (which the T-D did not identify, but presumably include Henrico, Chesterfield and Hanover). But the shift marks a dramatic change since the 1970s and 80s when poverty was a negligible problem in the Richmond region’s fast-growth counties.

Here’s the larger and more significant point, which the T-D did not make: There is no evidence that the shift in poverty from city to suburbs is slowing. Indeed, I would go so far as to suggest that there is a tipping point at which the shift will accelerate, and that it is possible that the poverty rate — and all the drawbacks associated with it, such as crime, social dysfunction, problems in schools, higher tax burdens — will be worse in the suburbs than the city 20 to 30 years from now.

Several factors are driving this reversal. First is continued gentrification in Richmond, similar to the trends we see in Washington, D.C., and other major cities, in which more affluent households move back into the city to be closer to job centers, cultural amenities and walkable neighborhoods. (Gaining proximity to mass transit is not, in my estimation, much of a motivator for affluent Richmonders.) The dramatic decline in the crime rate makes people far more comfortable living in the city than they once did. The poor quality of schools, especially middle schools,  and higher tax rate still remain deterrents — but that could change in time.

Meanwhile, poor people are leaking into the suburbs — typically into  unwalkable, lower-density neighborhoods that the middle and professional classes no longer find desirable. Unlike older city neighborhoods, with houses set on smaller lots within walking distance of retail, these older suburban tracts offer nothing to the affluent home buyer. Because their owners have been unwilling to reinvest in them, they have deteriorated and lost value. The poor are the only people willing to move into them now.

So, Henrico and Chesterfield now find themselves dealing with the problems associated with poverty — higher levels of crime (though down from the peak), social dysfunction and disruptive kids in school. Now, just like in the city, there are dicey districts in the counties where public safety is an issue. Now there are schools in the county to which  affluent households avoid sending their kids. Now counties have to share in the fiscal burden of dealing with poverty.

As I have argued elsewhere, human settlement patterns in the City of Richmond are inherently more fiscally efficient to maintain and replace than the scattered, disconnected, low-density settlement patterns of the outlying counties. That differential was masked while Richmond was coping with a 19th-century sewer-storm water system and the counties were basking in the newness of their infrastructure. But now, counties have aging infrastructure, too. At some point, a strengthening tax base in the city and an eroding tax base in the counties will be reflected in a shrinking tax differential between the two. When city taxes are no higher than county taxes, poof, there goes another reason to live in the counties.

When it comes to the distribution of poverty, the Richmond metropolitan area will be barely recognizable 20 to 30 years from now. The authors of “Confronting Suburban Poverty in America” fret that suburban counties are not prepared. They lack the soft infrastructure of governmental and not-for-profit social services, and poor households residing in the auto-dependent suburbs will be even more isolated than their counterparts in the city, who at least have access to mass transit.

To some people, the year 2043 might sound like the far-distant future. But the far-distant future has a way of arriving with frightening speed.

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Posted in 2013, Crime and corrections, Demographics, Infrastructure, Taxes

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Why Commercial Developers Should Be Afraid, Very Afraid

Posted on May 19, 2013 by James A. Bacon| 8 Comments
Metro Park VI

Metro Park VI

by James A. Bacon

While most commercial real estate markets across the United States are slowly recovering from the recession, office vacancies in the Washington metro area ticked higher over the past year, to 13.8% in the first quarter, according to the Wall Street Journal. Clearly a sequester-related decline in federal spending was partially responsible, particularly in Northern Virginia, home to the Pentagon and locus of the defense industry, where vacancies hit 15.8%.

But that’s not the whole story. Buried in the article was an anecdote that should send shivers down the backs of commercial property owners, real estate brokers and local government officials everywhere — not just NoVa, but everywhere — who depend upon commercial property tax revenue to balance their budgets.

Booz Allen Hamilton Holding Corp. signed up in 2011 to take one quarter of the space in MetroPark VI in southeast Fairfax County near a National Geospatial-Intelligence Agency base. But late last year, the WSJ reports, the firm reversed course. The company halted construction and put its entire space on the market for sub-lease. The reason for the move? Not just defense cutbacks.

James Fisher, a spokesman for Booz Allen, said the decision to sublease at least a portion of the space came as more employees have been working from home or at clients’ offices, and as the company has been looking to trim its real-estate footprint.

Companies everywhere are realizing that they have way too much office space. Given the increasingly mobile nature of work — cell phones, laptops, Wi-Fi, the Cloud — more and more people are conducting work at home, at Starbucks, on the road, or in client offices…. just as Fisher said. Mobile work has been around for  a while. What’s different now is that building-automation systems have reached the point where it is possible to measure office utilization far more easily and less intrusively than before. Energy-efficiency systems installed to eek energy savings from HVAC and light bills keep track of when offices are occupied and when they’re not in order to adjust lighting and temperatures. What many companies are discovering is that offices are literally half empty most of the time.

Other than payroll, office buildings represent one of the largest cost centers for service-sector businesses. Increasingly, companies are realizing that they can save loads of money by utilizing their work space more efficiently. This shift in thinking is a secular trend arising from new technologies, having nothing to do with the level of federal spending, and will persist regardless of what happens to federal spending.

As an aside, the Journal noted that tax revenues from commercial properties in Fairfax County are coming in $33 million short of expectations this year. Revenues grew only 0.1%, far less than the 6% anticipated.

If I were a commercial property owner in the Washington area, I would be very afraid.

If I were a Northern Virginia government official dependent upon property tax revenues to balance my budget, I would be very afraid.

If I were anyone, anywhere, counting on metropolitan growth and development patterns to continue on the same trajectory as the past six decades, I would be very afraid.

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Posted in 2013, Economic development, Land use & development, Taxes

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Cuccinelli makes progress with new ad

Posted on May 13, 2013 by Groveton| 13 Comments


The Wonder Years.  Despite his fetish for Mayberry-like settings, Ken Cuccinelli makes some good progress with his latest TV ad.  Set in what looks like a local hardware store Cuccinelli talks about cutting taxes for small businesses and the middle class by eliminating tax breaks for the well connected. Candidate Cuccinelli is still short on details.  However, the general philosophy of lowering tax rates by closing loopholes is a good one.

Chap stick.  I am going to assume that the loopholes Cuccinelli hopes to close are the endless and permanent giveaways engineered by the Imperial Clown Show in Richmond.  Cuccinelli hasn’t specified what loopholes he’ll try to close but there has been increasing scrutiny of the Virginia General Assembly playing Santa Claus for their friends.  Jim Bacon wrote about the disgrace of the Orion Air giveaway.  Sen Chap Petersen (D-Fairfax), one of the non-clowns in the General Assembly, went as far as proposing a constitutional amendment that would cap all special tax breaks at five years.  The tax breaks would end after five years unless specifically extended by the General Assembly.  Petersen’s exercise in common sense (SJ281) lost by a 12 – 27 vote in the senate.

Across the aisle.  One of the most interesting things about the SJ281 vote was the  composition of those voting “yea”.  Joining Petersen were NoVa Republicans like Dick Black, rural Democrats like Creigh Deeds, Republican Attorney General hopeful Mark Obershain and Democratic Lt Governor candidate Ralph Northam.  In fact, the votes for SJ281 pretty much lays out an inventory of non-clowns vs clowns in the Virginia Senate.  Sadly, the clowns outnumber the non-clowns by more than two to one.

Not on my tax break.  I am sure that there are plenty of special interests who believe that their tax breaks are sacrosanct.  I have heard that some environmental groups were worried that SJ281 could have threatened the tax breaks that come from putting land into conservation easements.  Of course, the General assembly could simply vote to extend those tax breaks once every five years.

How much?  If these tax breaks and tax credits are in Cuccinelli’s gun sights he may be able to afford a sizable tax cut by rolling them back.  Stunningly, the Virginia Pilot estimates that various tax credits and carve outs cost the Commonwealth $12.5B per year.  Cuccinelli could cherry pick only the worst giveaways and easily fund his proposed $1.4B per year tax cut.

Lemons into lemonade.  The recent scandals in Richmond have escalated the suspicion of Virginians that their state government is somewhere between sleazy and outright corrupt.  Cuccinelli himself is immersed in a mini-scandal around Star Scientific.  These scandals are small potatoes compared to the billions and billions given away to the well connected by the General Assembly.  Cuccinelli can go from goat to hero by taking on these freebies.

- D.J. Rippert  

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Posted in 2013, Budget, Economy, Politics, Taxes

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Misunderstanding the Link between Taxes and Economic Development

Posted on May 13, 2013 by James A. Bacon| 10 Comments
Tax Foundation graphic reproduced in the Atlantic Cities blog.

Tax Foundation graphic reproduced in the Atlantic Cities blog.

by James A. Bacon

In his latest post at the Atlantic Cities blog, Richard Florida asserts that a “lower state income tax does not spur economic development.” In support of his proposition, he argues that states with higher tax burdens are more affluent; they have higher concentrations of talent and workers in the so-called “creative” occupations. Writes Florida:

States with tax [income tax] burdens that range from $1,205 to $1,864 per person average $10,000 more in income than states with zero state income taxes — $81,594 versus $69,612. The same pattern is true of wages — states with high collections average $50,610 in wages versus $43,638 for states with low collections.

That’s pretty much his whole argument, although he does cite a two-year-old study from Nevada finding that states with Republican governors are associated with somewhat lower rates of growth and another study that criticizes “business climate” indexes as designed with political ends in mind.

There’s really no excuse for such superficial analysis. Yes, it’s true that high taxes and high incomes are correlated. But which way does the causality run? Do high taxes lead to high incomes, or do high incomes lead to high taxes? I would argue that the high incomes came first and the high taxes followed.

The evidence will show that some high-income states can trace much of their good fortune to historical factors, such as their 19th-century and early 20th-century leadership in the industrial revolution that created the vast wealth that seeded key institutions (universities, especially) necessary for the transition to the late-20th century transition to the knowledge economy. Thus, to pick an obvious example, Massachusetts prospers today because it is home to Harvard, MIT and a host of other highly ranked universities with billion-dollar endowments — not because of the splendiferous benefits conferred by its high taxes. Other states retain pockets of prosperity because they are home to world-class industry clusters that emerged decades ago and that seemingly no amount of mal-governance can dislodge. Think California, Silicon Valley and Hollywood.

What small-government conservatives argue is that lower-tax regimes stimulate more economic growth than high-tax regimes. Lower taxes may have little effect on an entrepreneur’s proclivity to launch a new business, but they do allow entrepreneurs to retain more of their earnings, which they can reinvest in growth.

The evidence is indisputable that high-tax states, on average, experience less job creation and significant out-migration to low-tax states. It’s pretty intuitive that people don’t move from New York to, say, Florida, North Carolina or Georgia for the better restaurants and high-brow culture. They move in search of superior job opportunities and lower cost of living. As a result, over a time span measured in decades, the income and wealth gap between Southern states and Northern states has narrowed considerably, even more so if you adjust for the differences in cost of living.

Where the debate gets interesting is when you ask the question, do higher taxes allow some states and local governments to support a higher level of infrastructure, amenity and service that people value more than the taxes they’re paying? Essentially, that is the argument that Florida makes. Insofar as states and regions use higher taxes to pay for better public schools and higher education, there may be some truth to that counter-argument. But when higher taxes go to pork-barrel spending, outrageous retirement packages for public employees and a more generous safety net for the poor, the argument falls apart.

To summarize, taxes are only one variable among many affecting economic growth and they explain only a modest fraction of the variability in growth rates between states. While lower taxes are (to my mind) clearly preferable to higher taxes, it would be unwise to overstate the case and tout them as an economic-development panacea. On the other hand, it is foolish, as Florida has done, to insist they have no significance.

For what it’s worth, Virginia’s income tax burden is 8th highest in the country, according to Tax Foundation data. Maybe that explains why economic growth here is relatively sluggish given the otherwise favorable business climate we have.

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The Tea Party and IRS Abuse

Posted on May 13, 2013 by Peter Galuszka| 5 Comments

richmond-tea-partyBy Peter Galuszka

News that the U.S. Internal Revenue Service has targeted Tea party groups, including one in Virginia, along with other right wing organizations is deeply disturbing and conjures up ghosts of other government witchhunts.

President Barack Obama has chastized the IRS for singling out the Tea Party and other groups that say they want to educate Americans about their constitution. One group that got “dozens and dozens” of questions about its application for a non-profit status was the Richmond Tea Party, according to leader Laurence Nordvig.

A government report traces the IRS activity to its Cincinnati field office that was charged with reviewing applications for non-profit status.

True, there are any number of groups seeking non-profit status for flimsy reasons, but being part of the Tea Party sure isn’t one of them.

And, using taxes as a weapon is hardly new and has been used by all sides of the political spectrum. Richard Nixon was famous for sicking the IRS on his “enemies” list in the 1970s. In Russia, Vladimir Putin used the Russian tax authorities to imprison potential political rival Mikhail Khodorkovsky who remains incarcerated.

Throughout the Civil Rights and Vietnam War era, the FBI had its COUNTELPRO to gather information about and disrupt groups on both left and right, including the NAACP, the Southern Christian Leadership Conference and Cuban and Irish nationalist organizations.

Some groups merited watching such as some of the Weathermen and the Ku Klux Klan who practiced violence.

But it is wrong for the federal government to harass peaceful, law-abiding political groups. I may not agree with the Tea Party, but they do meet this description.

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Posted in Courts and law, Crime and corrections, Politics, Public safety & health, Regulation, Taxes

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Were taxes paid on Kaine, Cuccinelli and McDonnell’s “gifts”?

Posted on May 9, 2013 by Groveton| 19 Comments

irsDo look a gift horse in the mouth.  As I read more and more about the tendency of Virginia’s elected officials to line their pockets with other people’s money I began wondering about the tax implications of such “perks of political office.” Even to a layman like me the IRS rules on gifts seem pretty straightforward.  The only slight debate on gift taxes relates to who should pay the tax. Per the IRS website: “The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead.”

For the love of loopholes.  One big loophole in gift taxes is the exclusion amount.  The IRS code allows a tax-free giving of gifts up to a certain amount each year.  In its benevolence to the wealthy Congress has been rapidly escalating this exclusion level in recent years.  The annual exclusion applies to each donee and is $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013.

Virginia’s hall of shame.  Virginia politicians love their “gifts.”  They can take pretty much anything in any quantity from anybody.  The only requirement is that they disclose the gifts (a requirement apparently too onerous for Ken Cuccinelli).  So, let’s take a trip down memory lane and look at some of the “gifts” received by the former governor, the current governor and the would be governor.

Tim Kaine.  Kaine wasted no time in reaping the benefits of elected office.  In 2005 Kaine accepted a five star Caribbean vacation from Albermarle County investor James B. Murray, Jr.  Kaine reported the value of the gift at $18,000.  In 2005 the exclusion limit was $11,000.  So, we have a $7,000 overage.  Assuming this overage was taxable – did anybody pay the taxes on that $7,000?

Bob McDonnell.  The McDonnell clan loves gifts.  In fact, they love gifts so much it can be hard to sort it all out.  Fortunately, Progressiveva has sorted it out for us.  Just from Star Scientific to Bob McDonnell we see $2,268 in lodging and entertainment in 2011 and $7,382 in free air fare in 2012.  Of course there is also that pesky $15,000 gift to McDonnell’s daughter in 2011 as well.  McDonnell falls below the exclusion allowance in 2011 and 2012 but his daughter does not.  The $15,000 gift should have generated a taxable $2,000 in 2011.  Did anybody  pay the taxes on that?

Ken Cuccinelli.  It is said that elephants never forget.  However, members of the elephant clan are not so lucky.  Ken “what day is it?” Cuccinelli seems hard pressed to remember all the gifts he has received from Star Scientific over the years.  So far, Cuccinelli has managed to recollect $12,965 in gifts from Star Scientific in 2011 and $3,000 in 2012.  Lucky Kenny comes in $35 below the $13,000 exclusionary limit in 2011.  Let’s hope our Attorney General doesn’t have any more flashes of lucidity in remembering any additional gifts from Star Scientific in 2011.

To be clear.  The donors or recipients may have very well paid the required taxes on the value of the gifts exceeding the exclusion level.  But given the sensitivity of these gifts and the fact that all three gentlemen are presently elected officials, shouldn’t Kaine and McDonnell publicly verify that all the required taxes were paid?  A simple public statement saying that all required federal and state taxes were paid would be enough for me.

- D.J. Rippert

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Posted in 2013, Finance, Governance reform, Taxes

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Cuccinelli: Promote Economic Development by Creating Level Playing Field

Posted on May 7, 2013 by James A. Bacon| 23 Comments

cuccinelliby James A. Bacon

In a press conference this morning at a Richmond SweetFrog restaurant, Attorney General Ken Cuccinelli laid out the philosophical principle that would guide his approach to economic development if he were elected governor: Create a level playing field for all businesses rather than incentives for a lucky few.

He would close tax loopholes carved out for special interests, restructure the tax code to eliminate local business taxes and reduce the top corporate income tax rate from 6% to 4%, and he would pare way back on grants and tax breaks used as economic incentives. “Relative to what you’ve seen in the past, I would take a much harder view” of incentives, he said.

Cuccinelli said he would follow the example of Governor Bob McDonnell in making job creation his top priority. But he has no intention of playing a wheeler-dealer in seeking big corporate investments. Instead, he wants to create a tax climate that is more attractive to job creators by lowering taxes for every Virginia business.

The presumed Republican gubernatorial nominee was introduced by Vance Spilman, chief operating officer of Sweet Frogs, a chain of yogurt shops that opened in 2009, now has 250 locations around the country and is preparing to expand overseas. Sweet Frogs is profitable, Spilman said, and it is reinvesting its profits to grow the enterprise, which currently provides jobs for about 400 Virginians. Reducing the corporate income tax from 6% to 4% would allow the company to grow faster, he said.

Cuccinelli’s plan contained only a few specifics. He would:

  • Reduce the top individual income tax rate from 5.75% to 5% over four years beginning in 2014.
  • Establish a Small Business Tax Relief Commission with the goal of reducing the state corporate income tax and eliminating or reducing local Business Professional Occupational License (BPOL), Machine and Tool (M&T), and Merchants Capital (MC) taxes.
  • Pay for those tax reductions by eliminating outdated tax exemptions and loopholes “that promote crony capitalism” and by limiting the growth of General Fund spending to the rate of inflation plus population growth.

If his revenue cap had applied to the current fiscal year, in which spending increased 5.8% and inflation + population growth increased 3.3%, his formula would have saved $530 million.

Cuccinelli did not say specifically which loopholes he would cut, although he did endorse a proposal outlined by Del. David J. Toscano, D-Charlottesville, and Del. R. Lee Ware, R-Chesterfield, that would have closed about $75 million in loopholes. He also said that service-sector exemptions for the sales tax would be “on the table,” although he ruled out extending the sales tax to education or health care.

Curtailing incentives, broadening the tax base and lowering tax rates would be “fairer” and create opportunity for all business, he said.

The candidate also highlighted the “unique window of opportunity” presented by the expansion of the Panama Canal and Hampton Roads’ temporary status as the only East Coast port with channels deep enough to accommodate fully loaded post-Panamax vessels. The next governor, he said, needs to maximize that opportunity, which is expected to last only three or four years, by participating actively in state marketing efforts to attract more port cargo and more distribution centers.

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Posted in 2013, Economic development, Politics, Taxes, Transportation

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Virginia: Pretty Darned Enterprising

Posted on May 3, 2013 by James A. Bacon| 6 Comments

enterprising_statesby James A. Bacon

For those who haven’t yet succumbed to state-ranking overload, here’s one more, this from the U.S. Chamber of Commerce. Its fourth annual Enterprising States report ranks states for the degree to which they are “best positioned to grow, create jobs and prosper in the coming five to ten years.”

The Chamber examines each state for 33 measures, which it organizes in six broad categories. Virginia snags a No. 5 spot for overall performance. Here is the breakdown by category:

Economic performance — 5th
Exports — 46th
Innovation and entrepreneurship — 3rd
Business climate — 16th
Talent pipeline — 5th
Infrastructure — 24th

Three of the top five performing states — North Dakota, Texas and Wyoming — are all enjoying natural resource booms. Of course, it could be said that Virginia has benefited from a federal spending boom. Here’s what the report says about the Old Dominion:

Virginia takes 1st place in our measure of general standard of living: median family income adjusted for cost of living. The state’s steady performance—ranking between 14th and 23rd in the other six performance measures—lands it 5th overall in growth and performance. Partly owing to its proximity to the nation’s capital, Virginia is a national leader in professional, scientific, and technical services. Virginia grew that sector 37% over the past decade — impressive growth for an already large sector.

And here is what Governor Bob McDonnell had to say:

Creating the best environment for private-sector job creation and innovation has been the top focus of our administration. Since we took office, our unemployment rate has fallen from 7.3 percent to 5.3 percent, the lowest rate in the Southeast and the second lowest east of the Mississippi. This report confirms that when it comes to supporting startups and new jobs, Virginia is a national leader and continuing to make substantive progress. But there is more to do. We have continued last year’s “Year of the Entrepreneur” campaign in Virginia with the ongoing “innoVAte” initiative, including an undergraduate business plan competition that brought some of the most promising startup ideas from 21 of Virginia’s colleges and universities to Richmond yesterday. Innovators like the young people who pitched their business plans to investors yesterday will form the backbone of a culture of entrepreneurship in Virginia that will continue to make the Commonwealth one of the best places to live, raise a family, and find a good job.

Bacon’s bottom line: To what extent can McDonnell, or any other governor, take credit for Virginia’s strong performance? That’s a really sticky question. Clearly, the national economy is a major factor in Virginia’s performance, and so is proximity to the federal spending machine in Washington, D.C. The boom in major industries, especially the energy and agricultural sectors, also has driven state performance recently — in Virginia’s case, an energy-importing state, acting as a drag on performance. It’s difficult to disentangle the effect of state or regional policy, and any claims must be taken with a grain of salt.

My first rule of economic development is, “Do no harm.” And other than raising taxes to crank up spending on transportation, McDonnell has done no harm. The initiatives he highlights in the prepared statement above have little more than symbolic value. What he has not done — he hasn’t passed a lot of expensive regulations or spending programs — is more important that what he has. And his record on that score is fairy good.

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Posted in 2013, Economic development, Economy, Infrastructure, Labor & workforce, Taxes

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