Category Archives: Taxes

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

Court Backs Little Debbie In Tax Dispute

McKee Foods’ Little Debbie

Don’t underestimate Little Debbie – the spunky tyke took on the Augusta County tax collectors and won.  But the county still has her money.

The Virginia Supreme Court has sided with manufacturer McKee Foods Corporation, which makes the Little Debbie snack products, in a dispute over the tax assessment on its 828,000-square-foot factory in Augusta County. The July 18 opinion by Chief Justice Donald Lemons (here) reverses a lower court decision, rejects the county’s existing valuations and sends the dispute back to the local circuit court for another look.  Continue reading

No Appeal Filed on RGGI Regulation, Now In Force

Virginia’s participation in the Regional Greenhouse Gas Initiative (RGGI) is now fully authorized under a new state regulation, and the deadline to appeal that regulation has now passed with no appeal filed.  The text of the regulation is here.

Language inserted by General Assembly Republicans into the current state budget merely puts RGGI membership and its related carbon tax on hold.  It did not overturn the regulation, which went into effect June 26. The outcome of the November election will likely determine whether that roadblock remains in place beyond next summer, when the current budget provisions expire.   Continue reading

Virginia Tax On Racinos Among Lowest in U.S.

2017 State revenue on gambling operations. Click for larger view. Source: American Gaming Association Annual Report. Virginia should appear on future lists.

If Virginia is going to sell its soul, we should at least get the market price.

The Virginia Racing Commission is starting to publish monthly reports on the cash flow to Colonial Downs and to the government under the new state-granted monopoly to operate gambling dens.  Any relationship to horse racing in these establishments is just an elaborate ruse, although there is this interesting new word in the industry: Racinos.

The April, May and June reports, which you can find here, track the slow roll opening of the slot machine facilities in Vinton, Richmond and at the main racetrack site in New Kent County.  Only the June report picks up some of the operation at the facility just opened on Midlothian Turnpike in Richmond, the excitement captured by this Richmond Times-Dispatch accountContinue reading

Pollution Control Tax Break Not An Incentive

Industrial dust collector, 1450 cf per minute

Not every tax policy decision should be made or measured on whether it stimulates more economic activity and thus more taxable revenue for the government. There are things the government should not tax.

Yet, returning once again to the well-thumbed June report on manufacturing incentives produced by the Joint Legislative Audit and Review Commission, that economic value add test was applied to one of the oldest tax exemptions under the sales tax rules, an exemption for equipment purchased to comply with federal or state environmental laws.  Continue reading

Weldon Cooper Revisited

 

In a recent post of Steve’s, members of this blog got into an extended discussion of the methodology used by the Weldon Cooper Center at UVa. to evaluate the effect of tax incentives, specifically its projecting the “impact of raising income taxes by the amount exempted.”  As promised, I contacted a senior executive at Weldon Cooper whom I know and asked for some clarification.

His answer was fairly lengthy, so I will quote key portions and try to summarize his position:

“The answer to your question is that every dollar spent has an opportunity cost.  As you point out, one way the opportunity cost can be measured is the value of the best alternative way you could have spent the money.  Another way is the cost to the economy of extracting a marginal dollar from the economy with a tax instrument….Every tax has some cost in terms of consumption foregone.”

“One cost of a tax is that it might cause some firm or some person to choose to be elsewhere.  This is not a ‘conservative’ idea.  It is just a standard result of microeconomics.  But we must not lose sight of the fact that how the money is spent is important as well.  People and firms value public safety, education services, infrastructure, clean environment, good administration and all the rest.  These things are not free.”

He objected to the characterization in BR of the Weldon Cooper method as “dynamic scoring”, saying, “this is incorrect and is a politically charged assertion.  It doesn’t make us ‘conservative’ to account for opportunity cost and [the effect on the economy of extracting a marginal dollar with a tax instrument].”

In summary, he asserts that any fair analysis must take account of all the effects of government spending.  On the one hand, “every tax has some cost in terms of consumption forgone.”  On the other hand, taxes are used to provide services to citizens that can be best provided by government, rather than the market.

Hall-Sizemore take:  I was off-base in my earlier characterization of the Weldon Cooper approach  as being an “assumption that, were it not for the incentives, those revenues would not have been needed. Thus, there was a ‘tax increase’ needed to produce the revenues.”  It is, in reality, a way of measuring the opportunity cost in terms of the effect of the marginal cost of raising the funds.  It also is a way of consistently comparing different types of economic development incentives.

Actually, balancing of opportunity costs occurs annually in the budget process.  Both the Governor and the legislature do it.  Either the legislature or the executive could determine that the projected revenue was in excess of what was needed to provide a good mix of services in an efficient way and therefore propose reducing the tax rate, rather than expand services.  (Those issues dominated the discussion in last year’s session.)  More often, the opposite is the case—the “needs” and the “wants” of the agencies exceed the amount of projected revenue and the executive and legislature decide that the opportunity cost should be borne by the government.  Thus, the marginal cost to the economy of raising taxes takes precedence over the cost of foregoing expansion of existing services or initiating new ones.

Federal Tax Conformity Flooding State With Cash

What will you do with your $110?  Thanks to the conformity revenue flood, it’s coming.

Checks are expected to arrive in October for most Virginia taxpayers, the most important piece of campaign mail they’ll get before November’s election.  The $110 extra refund, $220 for a married couple, is the General Assembly’s response to the huge influx of new state tax revenue created by conforming state rules to recent federal changes.  Continue reading

Comrades: Check Out Virginia’s Planned Economy!

There are portions of the recent state audit report on economic incentives that would warm the hearts of retired Soviet planned economy apparatchiks, sitting around their dachas dreaming of the good old days.  Case in point:  The analysis concluding Virginia’s use of a single sales factor method to tax manufacturers is “moderately effective.”  Continue reading

JLARC: Semiconductor Grants Have Not Succeeded

Incentives “spending” reviewed in recent JLARC report. Click for larger view.

The recent report from the Joint Legislative Audit and Review Commission on economic incentives related to manufacturing (here) goes far beyond a discussion of data centers, and if the General Assembly accepts it as gospel some of the existing incentives might be in jeopardy.

Two programs aimed at environmental goals should be eliminated, the staff (and by its vote the full legislative panel) concluded:  The Green Jobs Creation Tax Credit and the Green Diesel Fuel Producers Tax Credit.  Neither is being used to any extent.  Continue reading

Tourist Storm Protection

According to a story in Saturday’s Virginian Pilot, Virginia Beach is slated for more beach widening this summer.  The total cost of the project is $22.6 million, with the federal government providing $14.7 million (65 percent) and the city of Virginia Beach paying the remaining $7.9 million.

The newspaper article says that this project is a “part of a long-term plan to protect the commonwealth’s shoreline from storms.”  That sounds like a worthy idea, especially in this era of sea-level rise.  But, let’s not kid ourselves.  This project is not about protecting the shoreline or about resiliency, the buzzword of the day.  After all, if one is going to protect the shoreline and make it more resilient to stronger storms, one would not try to do so by putting down a substance that will start washing away the day after it is put down.  The owner of one of the ocean front hotels stated quite plainly the real purpose of the project:  “…having  a wide beach is important, not only for safety, but for what we’re selling to our guests.”

I do not have an objection to spending public funds to enhance a tourist attraction of the Commonwealth.  After all, tourism is one of the state’s largest industries.  The Virginia Tourism Corporation reported that, in 2017, tourism accounted for $25 billion in domestic visitor spending, supported 232,000 jobs, and brought in $1.7 billion in state and local tax revenue.

I do have an objection to who is providing the funding for the beach widening.  Continue reading

Meet GOP Carbon Tax Advocate Bob Inglis

The Hon. Robert Inglis

There is a hotbed of carbon tax advocacy at George Mason University, led by a former GOP congressman sent packing by South Carolina voters because he’s ready to tax them into loving solar and wind.  Continue reading

U.S. Taxes Income, Europeans Tax Consumption

Source: Tax Foundation based on OECD data.

A reminder to all you Bernie Bros out there who think that the U.S. federal/state/local tax system is stacked far more in favor of the rich than in the social democracies in Europe. This graphic based on data from the Organization of Economic Cooperation and Development (OECD), which, incidentally, is not funded by the Koch Brothers, shows that the U.S. relies much more upon individual income taxes and property taxes (thus taxing income and assets) than other nations with advanced economies. Other countries rely more heavily on regressive social insurance taxes and consumption taxes. The Europeans have figured out that they can crank up the income taxes only so high on the wealthy before they pack up and move. Instead they tax consumption.

Medicaid: Report The Taxes Along With The Growth

Expansion tracking on the Virginia DMAS website. Click to expand, web version is here.

Virginia makes is easy to track the growth of Medicaid enrollment since the decision a year ago to expand coverage but tracking the tax dollars behind the scenes is another matter.

The new enrollment expansion dashboard on the Department of Medical Assistance Services website is updated every couple of weeks, with the April 4 report showing just under 260,000 people added to the program since late last year.  The City of Salem has added the fewest, only 34 new recipients, while Fairfax County has added the most at 18,220.  The advertised goal for expansion was 400,000 persons, so probably there are more to come.  Continue reading

Bacon Bits: I-81 Taxes, VCCS Shrinkage, Solar

The Numbers on Interstate 81:  Tax First, Explain Later

When you approve a major tax increase with amendments proposed just a few days before the General Assembly’s reconvened session, as happened last week, discussion is limited and there is almost no hard data on the financial impact available to the public.  You tax first and explain later.  Continue reading

Bacon Bits: Highs and Lows

Digital gold rush. How lucrative are data centers for Loudoun County? The prosperous Northern Virginia county expects to collect $200 million in fiscal 2020 from the property tax on computer equipment, up 35% over 2019, according to the Washington Business Journal. Last week, the Loudoun County Board of Supervisors adopted a $3.2 billion operating budget that featured a “significant cut” to the real estate tax rate, an across-the-board pay raise for county employees, and $100 million more for county schools. Data centers are worth roughly $1,000 a year in lower taxes to Loudoun homeowners.

And at the other end of the fiscal spectrum…

Digging out. In the wake of the worst financial crisis suffered by any Virginia locality since the Great Depression, the City of Petersburg is building back its fund balance, The FY 2020 budget of $75.8 million will run a $2.6 million surplus this year and the city is budgeting for $3.6 million next year. The city still has a long way to go before reaching a fund balance of $18 million, healthy enough to fund the General Fund for three months, but it represents a dramatic improvement since FY 2016 when the fund balance collapsed to negative $7.7 million. Tax and utility payments remain high, but at least the city has a functioning government.

And in the “Them That Has Gets” department… Continue reading