Category Archives: Taxes

Golden Goose to Emerald City: Drop Dead

Seattle homeless person. Photo credit: Crosscut

By Stephen D. Haner

The brief snippet on the telly that caught my attention showed a massive Seattle office building being developed by Amazon, and the report was that construction is slowing because the company might start reducing its footprint and headcount in the Emerald City of Oz due to yet another Occupy Wall Street-inspired tax plan. It is actually called A Progressive Tax on Business, and a Progressive Revenue Task Force created it.

It didn’t take long to confirm the story about the construction project halt, or to gather details about the City Council proposal itself and the national firestorm it has started. The legislation is worth a read for the truly wonky because of the long list of whereas clauses used to justify taxing the gross payrolls of any company with annual revenue above $20 million. In Seattle, gross revenue of only $20 million qualifies you as a little company, apparently, worthy of nurture. One more buck and bam.

The tax amounts to 26 cents per employee-hour, with a goal of extracting $75 million which is supposed to alleviate homelessness with the construction of new affordable housing units. In 2021 it becomes a straight 0.7 percent of payroll.  Moving out of town won’t totally save local businesses from tax. “C. The tax applies to businesses with employee hours worked inside the City regardless of whether the place of business is located within or outside the City.”

My favorite line in the Council’s own advocacy piece for the proposal is: “Why does homelessness seem to be getting worse as the city spends more to address it?” You can’t make this stuff up, folks.

City and county personal income taxes are imposed in several areas of the United States, but I could not find anything comparable to this – an excise tax per hour on every single hour worked by a company employee, janitor or white shoe lawyer.

The tax policy discussion on this writes itself. Of course the 26 cents comes out of the next raise or benefit adjustment the company was planning – it has to.   With so many competitors exempt, it will be hard to raise prices. And as my students can all recite now, businesses do not pay taxes, they get the money from ________ (multiple choice:  employees, customers, stockholders or all of them). Tax employee hours and you get fewer _______ (correct answer:  employee hours.)

But what also caught my eye was the gutsy power-play threat from Amazon. I know many of you will say: This is another message to Amazon to move to a lower tax, business-loving environment such as Virginia. But if Amazon comes, and brings the jobs and investment reportedly attached to HQ2, will anybody be surprised when it starts to throw its weight here, too?

Regarding Prince William’s Computer Tax…

by Stephen D. Haner

The Prince William County Board of Supervisors yesterday voted to maintain a special tangible personal property tax rate on “programmable computer equipment” used in a business, providing a live and real-world example to continue our discussion on tax preferences and other incentives used to lure and keep businesses.

The general personal property tax rate in Prince William County is $3.70 per $100 of value, with the value basically set as the purchase price. Individuals pay the tax on cars, trailers and boat, but businesses pay annual property taxes on just about all their tangible goods -– furniture, art, machinery and tools, etc.  State law says that the tax rate on business property cannot exceed the rate on personal property (and that all by itself makes Judge Dillon a hero in my book).

About twenty years ago the leaders of Prince William, seeking to lure the computer industry (and I bet the industry proposed it first), lowered the tax rate to $1.25 on computer equipment. As far as I can tell the provision is uniformly available to any and all businesses with computers, which these days is about all of them. But of course it has proven very attractive to the data center industry.

This became news because Corey Stewart, the chairman of the board and a U.S. Senate wannabe, proposed ending the special lower tax rate, in effect tripling the tax on all the business computers in the county. He further proposed to use all of the additional revenue produced thereby to finance a modest reduction in the real estate tax rates – something he then advertised to the voters (oops, taxpayers) in a county-financed mailer.

I just noticed Jim’s post on Amazon. The competition for tech investment, of course, provides a huge additional headwind to Stewart’s idea. But here’s my take on the proposal, and feel free to challenge me.

As long as the county had made no explicit promises to data businesses as they located or expanded in Prince William, it is fair to question whether the preferential rate should be permanent. Prince Williams’ general property tax rate is still lower than that of surrounding localities. And it already automatically depreciates the cost basis behind the tax, so as an asset ages the tax bill goes down.

Stewart’s big mistake was to use the additional revenue to lower the real estate tax by a penny, a proposal that smacks of political pandering (in an election year, imagine that). Republicans who complain that businesses pay too few taxes are in vogue these days.

It would have been so much more effective and fair to propose to lower the overall tangible property tax rate instead, especially to set a slightly lower rate for all business property. After all, individuals still get part of their car tax paid by the state (the Gilmore Switcheroo), but the full tax falls on any business vehicle. Trade a specific preference for one favored investment for an incentive for all investments.

Good Idea: Set Priorities for Land Conservation

Virginia Conservation Land Statistics. Table credit: Department of Conservation and Recreation

Through tax credits for easements, land acquisitions for parks, and other means, the Commonwealth spends millions of dollars every year to conserve land. Under a new policy adopted by the Northam administration, the state will focus resources on safeguarding land with the highest conservation value.

This new strategy will rely upon a “data-driven process” devised by the Department of Conservation and Recreation (DCR) to rank conservation value. The “scientific analysis” will show where the Commonwealth can get the most conservation value for the buck.

“I believe that we need a land conservation strategy that is focused and targeted toward making measurable progress on our natural resource goals, from restoration of the Chesapeake Bay to providing resilience against sea level rise and other impacts of climate change,” said Governor Ralph Northam in a press release.

The administration said it first will prioritize permanent protection of the top 2% of lands with the highest conservation value and aim for protecting the top 10% within the next ten years. Priorities will include: “protecting watersheds and local water quality, securing and recovering wildlife populations and habitats, making sure agriculture and forestry are viable and sustainable, steering development away from vulnerable and disaster-prone areas, providing access to the outdoors, and preserving sites that represent the history of all Virginians.”

The DCR website “Virginia Conservation Lands Database” page notes that of Virginia’s 25.27 million-acre land area, more than 4 million acres, or 16%, has some form of protection. The main vehicle for preserving lands at present is the land preservation tax credit for up to 40% of the value of donated land or conservation easements. Taxpayers were able to use up to $20,000 per year in 2015, 2016, and 2017, and $50,000 per year in subsequent years.

Bacon’s bottom line: This makes total sense. Indeed, I recall having advocated a priority-setting process at some point in the past. If the state is going to hand out tax credits, which are the functional equivalent of budget expenditures, it should optimize the public value of the easements. It’s astonishing to me that it has taken so long to develop a methodology for ranking the easements, but I’m glad it has finally happened. Kudos to the Northam administration for bringing the program to fruition.

Supply Siders Like Virginia’s Economic Outlook

Virginia economic performance over the past 10 years: fair-to-middling.

Virginia’s economic performance has been mediocre over the past 10 years compared to that of other states, finds the 2018 edition of “Rich States, Poor States,” but the Commonwealth’s public policy mix gives it an economic outlook rank of 10th best in the nation.

The “Rich States, Poor States” economic competitiveness rating reflects the analytical viewpoint of supply-side economists Stephen Moore and Arthur B. Laffer and gives heavy weight to tax burden, public indebtedness, size of state bureaucracy, and traditional business-climate factors such as right-to-work and average workers’ compensation costs.

Many other factors influence a state’s prospects for economic growth, such as industry mix, education and skill levels of the workforce, entrepreneurial vitality, cost of living (particularly housing), and the quality of government services. Even so, the attributes identified by “Rich States, Poor States,” now in its eleventh year of publication, clearly have considerable value in explaining differential rates of population and economic growth.

Laffer and Moore elaborated upon the importance of tax burden in a Wall Street Journal column today, in which they made the case that the capping of State and Local Tax (SALT) deductions will accelerate the movement of businesses and people — especially wealthy people — from high-tax blue states to low-tax red states. States with the highest, most progressive tax tax burden like California and New York, they predicted, will be the biggest losers. Conversely, low-tax states will be the biggest winners.

About 90% of taxpayers are unaffected by the change. But high earners in places with hefty income taxes—not just California and New York, but also Minnesota and New Jersey—will bear more of the true cost of their state government. Also in big trouble are Connecticut and Illinois, where the overall state and local tax burden (especially property taxes) is so onerous that high-income residents will feel the burn now that they can’t deduct these costs on their federal returns. On the other side are nine states—including Florida, Nevada, Texas and Washington—that impose no tax at all on earned income.

Laffer and Moore did not discuss Virginia specifically, but according to the “Rich State, Poor State” methodology, the Old Dominion has a favorable tax and business climate. Hence, all other things being equal, economic performance should fare better looking forward than it did over the past 10 years when budget sequestration and defense spending caps squeezed the Northern Virginia and Hampton Roads economies.

I would caution against making any judgments regarding short-term performance based on these numbers. Federal spending is the No. 1 economic driver in Virginia, and the state’s fortunes rise and fall to a considerable degree depending upon the vagaries of federal budget policies. Right now, Uncle Sam is in spendthrift mode, so that augurs well for us. But, as I frequently warn, what can’t go on forever… won’t. At some point, the federal spending spigot will close.

Rather, tax and business climate factors make a difference over long periods of time. They facilitate a steady drip… drip… drip… in the migration of corporate and human capital from state to state, metro to metro. A perfect example is the recently announced relocation of Gerber Products Company of its U.S. headquarters from New Jersey to Arlington. The company will invest $5 million and create 150 jobs. By itself, that one move is not terribly significant given the huge scale of the Northern Virginia economy. But if the corporate migration from New Jersey and New York to Northern Virginia is entirely one way — and it is — small investments add up over a long period of time.

Does Uberization Increase Traffic Congestion?

The ride-hailing market in Washington, D.C. is booming — ridership for Uber, Lyft and other ride-hailing services have more than quadrupled since late 2015, reports the Washington Post. And that’s a problem, some say. All those vehicles on the road are adding to traffic congestion.

According to figures provided by the Washington mayor’s office, some of that traffic is diverted from traditional taxicab companies. Taxi ridership has fallen 31%, or about 6 million trips, since the ride-hailing boom began in late 2015. As far as traffic congestion is concerned, that’s a wash.

But a Washington Metro consultant last year noted that Uber and Lyft account for much of the commuter bus and rail system’s ridership decline. Average weekday ridership is down 135,000 from the decade-ago peak. Those riders are crowding the roads, while Metro’s revenues are sagging, making it difficult to keep up with maintenance and safety needs. Mayor Muriel E. Bowser has proposed increasing the gross receipts tax on “for-hire” vehicles to 4.75% to raise money for the Metro.

City officials concede, however, that they don’t have hard data on how many trips the ride-hailing services are providing, or how many passengers they are carrying. Calculating the impact is a challenge because, for Uber at least, a growing business segment is comprised of shared-ridership services. When riders share trips instead of riding solo, they take vehicles off the road.

In other big ride-hailing markets such as New York, San Francisco, and Boston, there is growing concern that the Uberization of transportation is cannibalizing mass transit and putting more vehicles on the road. Not only is the trend bleeding business from mass transit, it might even be creating new trips.

Bacon’s bottom line: I’m a big believer in the disruptive potential of Uberization (by which I mean the entire panoply of ride-hailing services encompassing Uber and all of its competitors and offshoots), but I acknowledge that the trend poses complex trade-offs.

The obvious benefit of Uberization is that people wouldn’t be flocking to ride-hailing services if they didn’t offer a superior value proposition. Do we really want to a tax 21st-century transportation mode to subsidize a 19th-century mode (commuter rail) and a 20th-century mode (buses)? Another plus is that if more people ride Uber, they won’t need to park their own car. Reducing the demand for on-street parking could free up space for other uses such as bicycles.

On the other hand… If Uberization does, in fact, put more vehicles on the road, the trend adds to traffic congestion, which imposes a social cost on other drivers. Arguably, more vehicles also equals higher CO2 emissions — at least until cars are powered by solar- and wind-generated electricity. Finally, given urban political realities, if Uberization undermines the economics of mass transit, taxpayers could wind up paying more to subsidize the failing transit systems.

The Washington Post article creates the impression that there is a growing backlash against Uberization. I worry that the backlash might become powerful enough to stifle the industry’s growth, experimentation and evolution into new forms. We’re still in the very early phases of the 21st-century transportation revolution, and as far as I’m concerned, the transportation future can’t come soon enough.

Fix the State Windfall from Federal Tax Reform

by Stephen D. Haner

Governor Ralph Northam recently announced the nomination of about two hundred economically-challenged portions of Virginia to become federal Opportunity Zones, a special designation similar to an enterprise zone created by the recent overhaul of federal tax laws. That’s good. But the economic opportunities available to all Virginians from the Tax Cuts and Jobs Act of 2017 are still in limbo.

Like most states, Virginia bases its tax code on the federal tax code – a practice called conformity.  The rules on income, deductions and credits that determine your federal taxable income serve as the starting point for your state taxes. Until 2002, Virginia’s conformity to the IRS Code was automatic. Starting in 2003 Virginia became a fixed-date conformity state, leaving it to the General Assembly to review and cherry pick from new federal tax provisions. It has chosen to de-conform from only a handful. Until now.

The 2018 Virginia General Assembly, following the advice of the administration, voted to conform to none of the tax changes for 2018. Individual and business taxpayers looking at the May 1 deadline for their first quarter state tax payments are having to base them on the 2017 federal tax code.

The federal changes were made late in the calendar year and their impact is still poorly understood at both the federal and state level. A decision in February to fully conform at the state level could have made state revenue projections less reliable. But it is not too soon for the state’s leaders to declare that their policy going forward is to conform to as many of the federal changes as possible, and to resist the temptation to let federal changes automatically result in a state tax increase for Virginians.

Full or almost full conformity to the rules should be the goal, with the tax brackets or rates then adjusted to produce revenue neutrality. If there is to be a revenue windfall, let it come from actual economic growth.

Inaction will produce higher state tax bills for many individuals due to changes to the federal standard deduction. Secretary of Finance Aubrey Layne recently told a legislative committee that a consultant has estimated more than 600,000 Virginia taxpayers will switch from itemized deductions to the standard deduction at the federal level for 2018. That will require them to also take the standard deduction at the state level.

At the federal level new lower tax rates offset the impact of losing those deductions. But with state tax rates staying the same, every $1,000 in lost deductions produces $57.50 in higher state income taxes. Even taxpayers who continue with itemized deductions at the federal level may see them shrink because of new limits, producing a higher state tax bill for them as well. To prevent a windfall the General Assembly will need to either increase the state standard deduction or lower individual rates.

The confusion caused by delayed decisions on conforming on business tax provisions is even greater, because the 2017 federal bill really reshuffled that deck.

A Virginia Department of Taxation presentation to the Assembly in January and one from the Division of Legislative Services highlighted new rules on losses claimed by businesses, on interest deductions, and on the amortization of research expenses.  There is a major new deduction for income from pass-through entities. The federal law doubled the expensing deduction for buying equipment from $500,000 to $1 million, one of the provisions expected to quickly juice the economy. The new law eliminates the domestic production activities deduction as a trade-off for lower federal tax rates.

When Virginia has refused to conform since 2002 it has usually been on business provisions like these and it may be tempted to do so again – putting Virginia companies at a disadvantage. It may also be tempted to try to tax all the off-shore income that Virginia-based companies are going to bring home and add to their federal returns.

Compare today’s lack of decision and discussion with the situation in 1986, when Congress passed the last major reform of federal taxes. There was an immediate push in Virginia to prevent a state-level revenue windfall. The push came from then-minority Republican legislators, and despite their minority status the issue struck a cord and the General Assembly responded with several positive changes to state tax brackets and personal exemptions.

The 1986 changes were not as complex and were not as focused on business taxes. But that focus on the business side this time around makes Virginia’s response all the more important. It is time to start this debate.

As his lobbying activities wind down, my former Roanoke Times colleague Steve Haner may again become a regular contributor to Bacon’s Rebellion, with a focus on some of the state and local issues that were the center of his career for four decades in Richmond. He will remain in business as Black Walnut Strategies for the near future. 

Subsidies for Thee, but Not for Me

Jamestown Settlement — tax thyself!

The economy of the Historic Triangle — Williamsburg, Yorktown and Jamestown — depends heavily upon heritage tourism. Visitor spending reached $1.08 billionand employed 11,000 workers in 2012, according to one report. But last year tourism and hospitality officials were complaining that growth had stagnated.

So, what do you do to boost the region’s No. 1 industry?

Raise taxes, of course. This year the General Assembly passed a bill backed by Senate Majority Leader Tommy Norment, R-James City County, to impose a 1 percentage point surcharge on the sales tax to raise revenue to be split equally between a new effort to rekindle Historical Triangle tourism and the three Triangle localities of Williamsburg, James City County and York County, reports the Daily Press. Williamsburg would use the funds to roll back the admissions tax and hotel and meals taxes it approved last year.

Sen. Monty Mason, D-Williamsburg, had opposed the tax all along on the grounds that it impacted poor people the most. After the bill sat on the desk of Governor Ralph Northam for three weeks, he prevailed upon Norment to amend the tax. The revised version would exempt the sales tax on food and add a $2-a-night hotel surcharge to recoup the lost revenue.

“I think this could be transformational,” Norment said.

Bacon’s bottom line: I don’t normally agree with Democratic Party politicians, but Mason is absolutely right about this. It’s one thing to tax hotels and restaurants, as Virginia Beach does, to raise funds to pour into marketing, promotion and infrastructure building. Although local residents do pay more for eating out, the tax is largely paid by the industry itself. But levying a sales tax on the general populace to benefit the industry is quite another thing. Such a tax would indeed impact the poor, who spend a disproportionate share of their incomes on food — not eating at restaurants but food purchased at grocery stores.

The workforce of Williamsburg, York and James City is about 70,000. In other words, five out of six people do not work in the hospitality industry. Undoubtedly some businesses provide goods and services to the sector, thus benefiting indirectly from its presence, but major employers like the College of William & Mary and the Anheuser-Busch brewery do not. The tax would represent a massive subsidy for the tourism sector at the expense of everyone else.

Don’t get me wrong — I personally love heritage tourism. I love visiting Colonial Williamsburg. But is that really the future that Triangle localities want to build for themselves? William & Mary, one of the highest regarded public universities in the country is located there. The Kingsmill Resort, which caters to affluent retirees, is located there. NASA Langley and Thomas Jefferson National Accelerator are located a few miles down Interstate 64. For $25 million a year, the community can’t come up with any better economic development initiative than promoting tourism?

As the dominant industry, the tourism sector is converting its political clout into public subsidies in order to perpetuate, even increase, its dominance. While a 1% sales tax surcharge might not seem like a lot, it will have a small dampening effect on economic activity not related to tourism. For example, the surcharge could encourage affluent retirees to select somewhere else to settle down and spend their money, thus impacting Kingsmill Resort-like development in the future and driving away citizens who pay lots in taxes but demand little in the way of government services.

I’m all in favor of not damaging your existing industry by refraining from enacting burdensome regulations and taxes. But if you want to nudge your community into the innovation-driven Knowledge Economy, you don’t do it by taxing the new economy to subsidize the old economy.

Here’s an Idea, Let Maryland Have Amazon

Virginia’s friend: Maryland Governor Larry Hogan

Maryland legislators approved Wednesday an $8.5 billion incentive package to lure Amazon’s second headquarters to Montgomery County. Governor Larry Hogan (R), who proposed the plan, is expected to sign the bill.

I love it! This is the best of all worlds for Virginia. Amazon has estimated that the headquarters will invest $5 billion and employ 50,000. If Amazon puts its second headquarters just across the Potomac River in Montgomery County, Md., Northern Virginia will benefit from many of the positive spillover effects without undermining its tax base to bribe the company into locating there.

Nonpartisan analysts with Maryland’s General Assembly said the incentives would cost the state $5.6 billion in tax breaks, $2 billion in transportation spending, and $924 million in local tax credits, for a total of $8.5 billion. While a solid majority of Maryland legislators backed the package, a sizable minority objected to the massive subsidies, reports the Washington Post.

“Amazon is getting the gold mine and we’re getting the shaft,” said Del. Herbert H. McMillan, R-Anne Arundel. He described the package as “corporate welfare.”

(Virginia has offered an incentive package as well, although nothing that has required approval by our General Assembly. The details remain confidential, despite efforts by anti-Amazon groups to obtain them through Freedom of Information Act requests.)

Let’s game this out. Let’s assume that Maryland’s bribery package is so generous that it outweighs anything Virginia can cobble together under existing legislation and appropriations. Let’s assume that Amazon builds an 8-million-square-foot  headquarters campus in Montgomery County, invests $5 billion, and hires 50,000 highly compensated workers, as it says it will. Where does that leave Virginia?

In the cat bird seat.

Maryland and Montgomery County hired the Sage Policy Group, Inc., to study the economic impact of an Amazon relocation to Montgomery County. The study finds that a full build-out would support more than 101,000 jobs in Maryland, generate nearly $7.7 billion in employee compensation, and boost economic activity by more than $17 billion. (Presumably these are annual figures, although the study’s Key Findings does not say so explicitly.) Writes Sage:

Complete development of Amazon’s HQ2 will create approximately $112 million in augmented tax revenue at the County level. The bulk of this will flow to Montgomery County through direct income and property tax effects, though indirect and induced activities will also augment local tax revenues as far north within Maryland as Frederick and Baltimore Counties. This tally includes nearly $64 million in property taxes and nearly $34 million in income taxes.

At the state level, tax receipts will increase by an estimated $190 million over the duration of development, including $84 million in sales tax revenues, $62 million in income tax revenue, and more than $10 million in nontax revenues (e.g., fees, and permits.)

Here’s what the Sage study overlooks: the costs associated with an added workforce of 101,000 in an era of full employment.

Unemployment for the Washington metropolitan area was 3.6% in February. That verges on a labor shortage. Indeed, for IT-related jobs, there is a labor shortage. To fill those jobs, Amazon will either (a) induce skilled employees from other metros to move to the Washington area, or (b) recruit skilled employees from local employers, who in turn will have to induce skilled employees from other metros to move to the Washington area. Those people will have to live somewhere, and they will require state and local government services.

The increased economic activity resulting from the Amazon headquarters will more than offset the drain from $8.5 billion in subsidies. But will it also offset the cost of building new infrastructure and providing state/local government services, including schools, to the tens of thousands of households moving into Maryland?

Let’s assume for purposes of illustration that a third of those 101,000 employees joining the Maryland workforce have children, and let’s assume that they have only one child at home on average, and let’s assume that only 75% of those children are of school age. That means we can expect an enrollment increase of 25,000 students in Maryland schools. The average cost per K-12 student in Maryland is about $15,000. Let’s say a 20% of that is overhead and that the variable cost per child is only $12,000. That pencils out to $300 million in added K-12 school expenditures.

Guess what. The total anticipated increase in state and local tax revenues is…. $300 million. That leaves nothing for public safety, public works, higher education, health care, social services, the environment, or the mandatory bloated bureaucratic overhead. Fiddle with the numbers in my assumptions, if you want, but understand the principle: Sage’s economic impact formula considers only tax benefits, not fiscal costs.

By contrast, Virginia will enjoy economic benefits from Amazon in Maryland without the tax giveaways.

The Sage study does not publish an estimate of the economic impact of an Amazon-in-Montgomery-County scenario on Virginia or Washington, D.C. scenario.  I suspect there’s a reason why Sage didn’t disclose those numbers — because an embarrassing proportion of the benefits of an Amazon move to Maryland will accrue to the entire metropolitan area.

“Entrepreneurship related directly or indirectly to e-commerce, cyber-security, big data analysis, and other segments would accelerate,” states the report. As it happens, cyber-security and big data analysis are industry sectors at which Virginia excels. It is inevitable that Amazon will do business with Virginia companies, and it is likely that Amazon or former Amazon employees will seed new enterprises in Virginia.

No doubt some Amazon employees will live in Virginia and drive across the Potomac. We’ll have to provide schools and other public services to them. Here’s the difference: We won’t have to eviscerate our tax base to do so.

Taxes, Data Centers, and Republican Party Politics

Corey Stewart

Data centers account for 92% of all new capital investment in Prince William County between 2012 and 2017. Now Corey Stewart, chairman of the Board of Supervisors and Republican candidate for the U.S. Senate, wants to raise taxes on them.

Stewart, who is running as a Donald Trump-style populist, proposes to use the $21 million in additional taxes to slash the county’s real estate tax rate. It’s about time, he says, that data centers pay their fair share of taxes, reports Inside Nova.

“The big data center companies in Prince William County are some of the largest, wealthiest corporations in the world,” Stewart said. “And I think people are concerned about data centers because these are big, ugly buildings that employ very few people, push up the cost of commercial land and drive the need for even more transmission lines in the county. We’re giving them a tax break, and that’s not right.”

Data centers used for cloud storage constitute one of the biggest bright spots in Virginia’s economic development efforts as the state struggles to diversify its economy from overreliance on the federal government. Loudoun and Prince William Counties have benefited from their proximity to the surfeit of high-capacity fiber-optic cable in Northern Virginia to attract billions of dollars in data-center investment. Other localities such as Virginia Beach and Henrico County have begun competing for the business by reducing tax rates on computers and peripherals. Even with the lower rates, data centers yield enough in local tax revenues that localities regard them as huge positives for the tax base.

In Prince William, the electricity-hungry data centers have become embroiled in a related issue of how to supply them with electric power. In a bitterly contested case, Dominion Energy has been trying to get approval to build a transmissions line through western Prince William County not only to serve a growing population but to deliver power to an Amazon Web Service data center in the Haymarket area.

According to Inside NoVa, Stewart argues that a higher tax won’t make existing data centers leave. The owners have already spent so much money to build the facilities and install the servers and other equipment that they would not shut them down.

Needless to say, the Northern Virginia Technology Council (NVTC) and its business allies oppose the tax, noting that raising the tariff will discourage future investment by cloud providers. Josh Levi, NVTC’s vice president for policy, says that some data centers fall into the category of “colocation centers” where the owner rents out server space to smaller businesses. If Prince William raised its tax rate, these colocation centers would have to pass on the new cost to their customers and potentially scare away some away. “It’s about dollars and cents, not emotions, for these companies,” Levi said.

Stewart responds that even with the tax increase, Prince William’s computer equipment rate still would be lower than that of Loudoun County, which has seen no diminution of interest by data centers. Cloud providers, he says, are still “pounding on their door.”

It will be interesting to see how Stewart’s tax-hike proposal plays out in the Republican senatorial nominating contest. Traditionally, Republicans could be counted on to take a pro-business, anti-tax stance. But Stewart is inveighing against a group of companies that are taking a beating in the public perception, especially among political conservatives.

Facebook has been roundly criticized from the left for being insufficiently vigilant in protecting the privacy of its users from misuse by Cambridge Analytica, an English data mining company affiliated with conservative figures and the Trump campaign. But conservatives have retorted that Facebook shared far more user data with the Obama campaign. A populist wave building within conservative media contends that Facebook, Google, Twitter and other West Coast tech giants, increasingly politically correct, are suppressing conservative voices on social media. Likewise, President Trump has singled out Amazon for allegedly not paying its fair share of sales taxes. If the revolt against the tech giants continues to build, then Stewart’s tax gambit could play very well in the Republican base.

Bacon’s bottom line: The Democratic Party and the Republican Party both represent coalitions of diverse groups and interests. Increasingly, the Democrats appear to be divided between the leftist “Bernie bro” faction and the establishment Hillary faction. Similarly, Republicans are divided between a populist Trump-loving faction and an establishment faction repelled by Trump’s careless, populist rhetoric.

Those divides are reflected in Virginia politics. Virginia Democrats faced a choice between the establishment candidate Ralph Northam and the Bernie-bro candidate, Tom Perriello in the nomination for governor last year. Having won both the nomination and the election, Northam appears to be in a position to keep the party unified… at least for now. While Republicans also selected an establishment candidate to run for governor, Ed Gillespie, he lost handily, creating a big opening for a Trump-style populist like Stewart. While I question his policy proposal to increase taxes on data centers, I suspect that Stewart’s gambit might be good politics — good enough, at least, to win the nomination.

As the dominant political parties schism, I can’t help but think there is an opportunity for a fiscally conservative, market-oriented, socially moderate and racially/ethnically inclusive party like the Libertarians. Libertarians have yet to identify a demographic constituency upon which to build a political base. But if they find just one leader who can crack that nut, politics in Virginia and the nation are ready to crystallize into a very different form.

The Tax Cuts Are Working

by Jack Hubbard

We’re barely three months into 2018 yet, and Virginia is already off to an incredible start.

The passage of the Republican tax plan in late 2017 has allowed Virginia’s more than 700,000 small businesses to breathe a sigh of financial relief.

Prior to the passage of the Tax Cuts and Jobs Act, the majority of small businesses (95%) were taxed at nearly 40% by the federal government. After state and local taxes were added in, that number often reached 50%. This astronomically high tax burden diverted valuable resources from job growth to government coffers. President Trump and Congress knew something had to be done.

Under the new tax code, small businesses whose income is less than $315,000 can now claim a 20% tax deduction, leaving more resources for investment and job creation. In Virginia, that increased deduction applies to nearly all of Virginia businesses. And these businesses now can take these tax savings, reinvest them, and expand their enterprises.

What happens when businesses expand? New hiring follows, putting more Virginians on the career ladder. And more Virginians working leads to greater investment in the Old Dominion.

Additionally, the tax plan’s lower tax rates and increased deductions have empowered businesses throughout the country to pass on tax savings and to their employees. So far, more than four million Americans have received a pay increase or bonus from their employer since the tax bill was passed. Larger companies such as Walmart, BB&T Bank, and Capital One have all increased starter wages.

Here in Virginia, the Bank of James in Lynchburg has raised starting wages to $15, added vacation days, and increased its charitable giving plans.

The list of beneficiaries of the tax bill continues to grow. Even many public utilities have announced that they will be cutting rates on their customers. Residents in nearby Washington, D.C., will see their electric rates cut after Pepco announced lower rates during the first quarter of 2018, and I can only hope that Virginia companies follow suit. These cuts are occurring only because President Trump and Congress did their jobs, and people are seeing real  money in their pockets.

Media reports notwithstanding, the Tax Cuts and Jobs Act has proven itself time and again in only one month since its passage.

While Democrats may call tax savings “crumbs,” the real-world benefits of tax cuts suggest otherwise. Job creators—and the people they serve—are more optimistic than ever. Imagine what the rest of 2018 will have to offer.

Jack Hubbard owns the The HomeMade Gin Kit in Alexandria.