Category Archives: Taxes

The Mo’ Money Mountain Grows Ever Bigger

In his latest budgetary proposal, Governor Ralph Northam has proposed returning $733 million to Virginia taxpayers… Oh, wait a minute. I guess I misread the announcement. It seems he’s proposing $733 million in new spending to protect the environment and fight climate change.

That’s on top of advocating Virginia’s entry into the Regional Greenhouse Gas Initiative, expected to cost ratepayers multiple billions of dollars over the next decade; mo’ money for a preschool initiative; mo’ money for K-12 education; mo’ money to reduce maternal mortality; mo’ money for Medicaid; and mo’ money for the Virginia Retirement System. Meanwhile, his Secretary of Transportation is pushing for mo’ money for transportation funding, and he has yet to declare his position on the higher education lobby’s clamor for mo’ money.

There’s money for every Democratic Party constituency imaginable. That’s what you get with growing tax revenue and a statehouse controlled by Democrats. The one constituency getting muscled away from the feeding trough is the taxpayer. Elections have consequences.

And what are the middle- and working-class saps who pay the taxes doing about it? They’re mobilizing in defense of gun rights, getting rural and suburban localities to declare themselves Second Amendment sanctuaries.

What????? People, in the grand scheme of things, what is a bigger threat to your way of life? Restrictions on your right to purchase semi-automatic weapons… or higher income taxes, higher electric bills, higher gas taxes, runaway cost of college attendance, and out-of-control increases in the cost of health care? A few more years of going in the direction we’re going, and you won’t be able to afford to buy a semi-automatic rifle!

— JAB

Watch Out! Here Comes a Gas Tax Hike!

Shannon Valentine

by James A. Bacon

Bacon’s Rebellion predicted that the change of political power in the General Assembly from red to blue would bring a raft of proposals for tax increases and revenue enhancements.

Because the General Fund is expected to see healthy revenue growth in the next biennial budget, I speculated that the Northam administration and its legislative allies would be restrained in their quest for new money, most likely pushing for sources that were either too opaque to understand (such as changes to tax deductions in response to the federal tax law) or too fragmented and obscure for anyone to notice. But it looks like I was wrong (hardly for the first time). According to WTOP, Secretary of Transportation Shannon Valentine suggested yesterday that the state could raise gas taxes next year.

Without a change to increase the gas tax or some other transportation funding source, the administration projects a decline in funding for road construction and other projects. In a development that takes absolutely no one by surprise, it turns out that fuel-efficiency improvements in Virginia’s automobile fleet are cutting into gasoline tax revenues. Continue reading

In Failure, the GOP Has an Opportunity to Reinvent Itself

Todd Gilbert, House Majority Leader and soon-to-be House Minority Leader: GOP must learn to appeal to suburban voters.

by James A. Bacon

So, the Republicans have wrapped up their annual “Advance” — a retreat at the Omni Homestead resort in Bath County. And if reports of the two newspapers that covered the event are to be believed — one from the Washington Post and one from the Roanoke Times — GOP leaders have absolutely no clue how to become competitive statewide.

Attendees do agree that they got shellacked in the November election, and they share a vague sense that they need to increase their appeal in the suburbs. But their only hope at this point resides in the conviction that Democrats will over-reach with Trump Derangement Syndrome in Washington and enact California-style legislation in Richmond. If voters get buyer’s remorse, they might start voting for Republicans again.

But you can’t defeat something with nothing, and there is no indication in either news account that Republicans gave much thought to what they stood for, other than not being insane. Continue reading

Conformity Article Errata, Semi-Mea Culpa

I got enough of importance wrong in yesterday’s post on state income tax policy that a real correction is required, not just a tweak to the existing previous post.  Herewith what I know I got wrong:

  • As Dick Hall-Sizemore pointed out, correcting me in a comment, the 2019 provision creating a new Taxpayer Relief Fund did not include the additional corporate income tax revenue generated by conforming to federal changes. If I understood that back when I last looked at the language, it certainly had flown my memory by the time I sat down to write Thursday evening.  Only excess “windfall” revenue from individual taxpayers was to provide the top line in calculating the new fund balance.
  • And in looking at the bottom line, I made a math error on the fiscal impact of two corporate income tax amendments mentioned on that Senate Finance Committee chart. The four-year impact of the GILTI and net interest deduction provisions is about $85 million over four years, not $210 million.

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Games Still Played with “Conformity Windfall”

Look what they did here! This Senate Finance Committee slide from November shows only “conformity windfall” revenue from individual provisions, but then deducts individual and corporate tax relief against those totals to shrink the size of the Taxpayer Relief Fund, source of future tax reform. That’s not what the General Assembly ordered. How much corporate “conformity windfall” is missing from the top line of this chart?

By Steve Haner

Sometimes you have to start the victory lap, even if you only get halfway around the track. A year ago, on Bacon’s Rebellion and in Thomas Jefferson Institute for Public Policy organs, I was beating the drum for a proposal to double the state’s standard deduction, the amount of family income exempt from income tax.

When the smoke cleared, the legislature had made a start, increasing the standard deduction for a married couple from the ridiculously greedy (on the Tax Man’s part) $6,000 to a slightly less ludicrous $9,000. This at a time when the federal standard deduction was going to $24,000, meaning the state taxes Virginia middle-income families more far heavily than Uncle Sam.

To add insult to injury, the legislature delayed the impact of the change until the 2019 tax year, even though it could easily have made it effective for the 2018 tax year that was settled with last spring’s returns and refunds. But the good new is that the change, now in effect, will save Virginians $360 million this year and $236 million on next year’s taxes. Here is what I wrote about it Thursday for the Jefferson Institute.

The legislature agreed to one other major provision proposed by the Jefferson Institute, creating a Taxpayer Relief Fund to hold in abeyance any and all “windfall” revenue not returned by the changes made in that 2019 bill. Remember that as you read on, it is key. The state may be playing a deceptive game which I just figured out and explain below.

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Virginia tax increases: Outlook for 2020

By Don Rippert

Promises, promises. As Virginia’s new Democratic majority in the General Assembly starts to take power, three issues emerge. First, many of the winning Democratic candidates promised deeper and broader social benefits from the state. Expanded Medicaid, more money for K-12, more money for higher education, more money for green initiatives, etc. Second, few of the winning Democratic candidates spent any time describing just how these expanded social benefits would be financed. Politics as usual. Third, regardless of their expressed political philosophy, the vast majority of Virginians do not want to pay higher taxes. What now? Will the Democrats stick with reforms that don’t require new taxes or move into change areas which can only be implemented with “mo’ money”? If the latter, will the Democratic majority transparently raise taxes or engage in opaque budget trickery?

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Raise My Tax, Please

Photo credit: WDBJ 7

by Dick Hall-Sizemore

The voters in one of the most conservative and rural parts of the state recently acted contrary to stereotype and voted to raise their taxes.  Furthermore, that action was made possible by legislation sponsored by their Republican delegate in the General Assembly

Halifax County has been wrestling for several years with the issue of replacing the county’s lone high school. The general consensus has been that something needed to be done, either renovation or replacement. The daunting question was the projected cost: $88 to $99 million, depending on the option chosen. The county already had committed (under court order) to incurring substantial debt to substantially renovate the courthouse.  Therefore, it was felt that the current tax base could not support the debt needed for the high school project, without a substantial, and politically unlikely, increase in the tax rate. Continue reading

Map of the Day: Median Housing Values

Virginia median owner-occupied house values by census district. Source: StatChat blog. Click to enlarge.

The StatChat blog has published a fascinating map showing the median value of owner-occupied housing across Virginia by census tract. The map appears as part of an essay on the relationship between housing affordability and school quality, which I may blog about later. But in the meantime, I thought the map was worth publishing on its own terms.

There are no huge surprises here — the highest median values occur in Virginia’s major metropolitan areas, most notably Northern Virginia, and values are lowest in depressed rural areas, particularly Southside and Southwest Virginia. (The blog post does not contain a color key indicating what values the colors represent, but you still get an idea of relative values.) Continue reading

Why Can’t I Have My Cake And Eat It Too?

Sometimes the tensions and contradictions in our public discourse are summed up with stunning simplicity.

The Richmond Times-Dispatch has been running a series setting out the answers of candidates for local office to a set of standard questions.  Today the spotlight was on Hanover County.

The answers of a long-time incumbent on the Board of Supervisors struck me. First, he asserted, “I’ve never voted for a tax rate increase because I think we should only spend within our means.” OK, fair enough. I will let that one go. But, in answer to the question of what issues appear to be the most important to his constituents, he replied, “In my district, people don’t want more housing. It would mean having to pay for more schools and public services. People are also concerned about the lack of broadband and internet service.”

Don’t he and his constituents realize that they don’t have broadband and internet service because there are not enough houses in rural areas to make it worthwhile for cable companies to provide that service? If they don’t want any more houses, then how do they think they are going to get broadband? Should the county subsidize expanding broadband to those areas? Oh, that’s right. They don’t want to raise their tax rate.

— Dick Hall-Sizemore

Taxes Likely to Go up in Virginia

by Hans Bader

Taxes are likely to increase in Virginia after the Democrats take control of its state legislature this fall. Democratic spending proposals would add at least a billion dollars annually to the state budget. These costly proposals can’t be paid for without raising taxes, because the cost of existing state programs is already rising faster than state revenue. That leaves too little money to pay for new programs, unless there’s a tax increase.

More importantly, state revenue will shrink due to several labor policies that Democrats are likely to enact. Those policies will eliminate 100,000 jobs or more. Job losses reduce state income tax revenue, because unemployed people have less income. They also cut state sales tax revenue, because unemployed people have less money to spend. The result will be a growing gap between higher spending and lower revenue. To eliminate that gap, the state will eventually have to raise tax rates a lot.

The State Board of Education recently proposed increasing education spending by $950 million. Unfortunately, that proposal also contains a provision that undermines safeguards against wasteful government spending. It states that in the future, the “Board would no longer have authority to withhold these funds,” even when a school system fails to meet “state accountability standards and fails to implement corrective action plans.” Continue reading

Virginia Cheap with Incentives… Back in 2012

by James A. Bacon

According to an in-depth study based on 2012 data, Virginia dedicated a lower percentage of its GDP to economic-development incentives than all but three of the 50 states and the District of Columbia. The Old Dominion’s $57 million in incentives that year amounted to a measly .0133% of the state’s economy — a little more than one-hundredth of one percent.

Crucially, Virginia also ranked 5th nationally in its consistency in enforcing agreements to make sure companies live up to commitments regarding level of investment, job creation and job quality. On the other hand, the state ranked only 18th in transparency in online disclosure.

So concludes Kenneth P. Thomas, a University of Missouri political scientist in a policy brief published by the Mercatus Center, “The State of State and Local Subsidies to Business.Continue reading

How Should We Tax Electric Vehicles?


by James A. Bacon

Electric vehicles (EVs) are commonly touted as a necessary part of America’s green energy future: Shifting from cars powered by gasoline-combustion to cars powered by 100% clean electricity will cut CO2 emissions (and other pollutants) implicated in global warming. Virginia ranks among the states with the lowest EV market share. But on the assumption that EVs eventually will become part of Virginia’s energy future, there’s no time like the present to start thinking about what EV taxation should look like.

Perhaps the most pressing issue is whether to tax EVs the same as conventional cars for the purpose of raising money to pay for the construction and maintenance of roads, highways and bridges. EVs contribute to traffic congestion and cause traffic accidents like any other kind of car. Should their owners not share in the cost of building, maintaining and operating roads?

The rise of EVs, hybrids and high miles-per-gallons vehicles was part of the justification when Virginia overhauled its transportation tax structure during the McDonnell administration. Revenues from the gasoline tax were stagnating, and legislators saw a need to diversify the source of transportation revenues. Once the tax increases were enacted, however, cogitation about the tax structure largely ceased.

Virginia cannot ignore the problem forever. One good place to start thinking about the issue of EVs and road maintenance is a new paper by two University of California professors, Lucas W. Davis and James M. Sallee, “Should Electric Vehicle Drivers Pay a Mileage Tax?” The paper explores the many trade-offs involved. Continue reading

Robin Hood and the Borderline Itemizers

by Bill Tracy

I am pleased to report that Robin Hood is alive and well in Virginia! Most taxpayers are now receiving a state tax rebate courtesy Governor Ralph Northam and the General Assembly. Eligible taxpayers may receive up to $110 for individual filers and up to $220 for a married couple filing jointly.

But, hey, wait one minute! Where the heck is all of this “income redistribution” cash coming from? Taxpayers like me, of course, had their state taxes increased substantially. If you will recall, about a year ago, Gov Northam was saying that some Virginia taxpayers have been underpaying taxes, and he aimed to fix that by increasing them.

Who were these deadbeat Virginia taxpayers? Some are senior citizens like me who have committed the “crime” of not having enough itemized deductions to meet the new higher Federal standard deduction. As senior citizens, my wife and I now have to come up with $26,600 of itemized deductions or suffer the consequences of Virginia’s new tax bite. Continue reading

Carbon Tax for Your Car, SUV Takes Shape at TCI

 

By Steve Haner

In this politically sensitive moment, they don’t call it “cap and tax” but instead “cap and invest.” Yet, the recently released draft Transportation and Climate Initiative proposal fits a Bacon’s Rebellion prediction in March that next they would be coming to tax your SUV.

Reducing CO2 emissions from electric power plants with a cap and tax scheme is not enough, of course. More of those dread emissions (you and I call it exhaling) come from vehicles, despite rapid improvements in engine efficiency and alternatives to fossil fuel combustion. The Northam Administration has Virginia fully engaged. Legislation to require General Assembly approval for this regional compact was vetoed.

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Surplus? How About $455 Million Windfall Tax Hike

Income breakdown and average “windfall” tax in 2018 on the taxpayers who paid more. All averaged more than $220. Source: Secretary of Finance and Ernst & Young. Click to expand.

by Steve Haner

Virginia ended the last fiscal year with about $797 million more in revenue than projected, and the Northam Administration credits $455 million of that to higher taxes on about 30% of taxpayers caused by conforming to the new federal tax law. More than 700,000 tax returns stopped claiming state itemized deductions, accounting for much of that.

The tax conformity windfall amount was calculated by outside consultant Ernst and Young, Secretary of Finance Aubrey Layne told a meeting of the combined legislative money committees Tuesday. That is not the same firm hired last year to project the state tax impact of the federal Tax Cuts and Jobs Act. Layne said he wanted a different team looking at the results.

The E&Y report is the final 23 pages of Layne’s slide presentation to the committees, here. Continue reading