Category Archives: Taxes

If No Better Ideas Emerge, Go With These

By Steve Haner

First published Tuesday by the Thomas Jefferson Institute for Public Policy.

In 1972, a Virginia taxpayer needed a taxable income of $12,000 before the state’s maximum income tax rate kicked in. Adjusted for inflation, that threshold should be $78,000 today.

There has been one adjustment since, to $17,000 in income before the maximum rate is now applied. Adjusting that for inflation since 1987, when last amended, that should now be $40,000. In Virginia today, even a lower middle-income couple can be paying the same maximum tax rate as the richest Virginians on parts of their income.  Continue reading

How Not to Treat a Conservation Easement

Abandoned camper. Photo credit: Wikipedia

The Commonwealth needs to tighten up its system for granting and overseeing conservation easements, the Virginia Office of the State Inspector General (OSIG) has found.

One of three conservation-easement properties visited by OSIG auditors did not meet Conservation Value Review Criteria adopted to provide for quality conservation value. The inspectors saw “trash, old tires, scrap metal piles, old campers, inoperable vehicles, and a manure storage area that contained deceased cattle parts on the property.”

Additionally, easements between $500,000 and $1 million lacked restrictions for water quality, historical preservation and agricultural use when compared to easements resulting in tax credits of $1 million or more. Continue reading

The Middle Class’s Death by a Thousand Cuts

A Chinese lingchi execution, circa 1905. Source: Wikipedia

by James A. Bacon

Two items in the news today serve as a reminder of how the rules enacted by the American governing class benefit the rich, aid the poor, and tighten the screw on the middle class.

The new tax dodge. First, The Wall Street Journal describes the increasingly widespread tactic in which the super-wealthy borrow money at extremely low interest rates created by Federal Reserve Board monetary policy in order to avoid triggering the taxable event of cashing in capital gains. “You could buy a boat, you could go to Disney World, you could buy a company,” said one tax adviser. “The tax benefits are stunning.” The Journal describes the strategy as “Buy, Borrow, Die” — borrow money against stock holdings to pay for everything, and never pay income or capital-gains taxes. Ever.

The impact of super-low interest rates on the middle class is very different. The suckers and schmucks who pay taxes on their paychecks and manage to build a nest egg over a lifetime find themselves collecting near-zero interest on their bank CDs, money market funds, and treasury bills. While the super-wealthy borrow at near-zero rates to avoid taxes, middle-class Americans generate near-zero incomes on their savings — and get taxed on that miniscule income in the process! Continue reading

Time to Cut Taxes

by Stephen D. Haner

If Virginia ended the fiscal year June 30 with a general fund cash surplus of $2 billion, almost 10 percent of its annual budget, that means taxes are too high. Period. The debate for the 2021 political season should be how to cut taxes, and how much.

The $2 billion projection surfaced in recent legislative meetings and departing Secretary of Finance Aubrey Layne did not dispute it. He and his staff have the best handle on state tax collections as they come in, and probably know the final amount already. It might not be announced until August.

The $2 billion represents tax collections beyond the initial estimates and is only part of the coming surplus. The other piece is cash not spent in the budget, and there are always programs that do not use 100 percent of their assigned funding.

The $2 billion or larger general fund surplus should not be confused with the flood of federal funding justified by COVID which is washing across state and local governments and the private economy. The General Assembly will be back in Richmond next month with billions of COVID-related dollars to allocate. The fate of the general fund surplus will be decided by the regular General Assembly session which begins in January. Continue reading

Northam’s Hidden 40% Gasoline Tax Hike

Fill ‘er up

Did you know that last year Virginia’s tax on gasoline increased 5 cents per gallon, on July 1, 2020, from 24.4 cents to 29.4 cents?

Did you know that this year Virginia’s tax on gasoline is increasing again, by another 5 cents per gallon on July 1, 2021, to 34.4 cents? That is a 40% increase in one year.

Also, starting next year the Virginia gasoline tax will automatically increase with inflation every July 1st.

Did you know that in addition to the Virginia gasoline tax, there is a federal gasoline tax of 18.4 cents?

Therefore, the total gasoline tax at Virginia pumps will have increased from 42.8 cents in 2019 to 52.8 cents this year.

You won’t find these numbers in press reports because the Virginia government obfuscates gasoline taxes. Continue reading

What to Do with Virginia’s Pile O’ Money

by James A. Bacon

Virginia is expected to close out the year with a $2 billion budget surplus. An estimated $900 million is required under the state constitution to go into a rainy day reserve fund. That leaves roughly $1.1 billion for the next General Assembly and Governor of Virginia to play with.

According to Brandon Jarvis’ Virginia Scope newsletter, the two candidates for governor, Glenn Youngkin and Terry McAuliffe, have very different ideas of what to do with the surplus cash.

“Virginia families deserve a tax refund from this surplus,” said Youngkin spokesperson Macaulay Porter. “Investing in our kids and our schools, public safety, and infrastructure is the right thing to do.”

Vague… very vague. But at least the statement signals a willingness to return something to taxpayers and to slow the relentless growth in state spending. By contrast, McAuliffe is campaigning on a promise to spend $2 billion per year more on education — much of it to boost teacher salaries. Continue reading

With Defeat in Connecticut, Will Virginia Drop TCI?

By Steve Haner

First published this morning by the Thomas Jefferson Institute for Public Policy.

Why do Virginia’s leaders run away from the Transportation and Climate Initiative? Could it be because the first state legislature to consider it, in reliably Democratic Connecticut, just adjourned without even taking a vote on the proposed carbon tax compact, despite strong support from Democratic Governor Ned Lamont?

The Virginia Department of Environmental Quality has called a June 24 public meeting to discuss efforts to ramp down carbon dioxide emissions from transportation sources, but it made no mention of the pending TCI interstate compact. Instead it focused on the General Assembly’s approved 2045 goal of “net zero” emissions in all sectors of the economy, including transportation. Continue reading

State Revenue Up a Full Third in Northam Years

Departing Secretary of Finance Aubrey Layne

by Steve Haner

With one month to go in its fiscal year, Virginia has almost met its General Fund revenue target in the first eleven months, as the revenue bonanza described here before continues. Partly it is due to the strong economic recovery post-COVID, but it is also due to numerous increased tax rates or policy changes under Governor Ralph Northam.

With 11 months of the basic taxes now accounted for, the state has collected just a hair under $22 billion towards the $22.3 billion it estimated in the budget adopted last year and amended this winter. Compared to the same point four years ago, total GF revenue has grown a full one-third. With the deepest recession of the past century in between the comparison points. Continue reading

Businesses Taxed For Somebody Else’s Layoffs?

Labor Force Participation Rates, March 2021. Source: VEC  Click for larger view. It represents the percentage of population of working age employed or seeking a job.

by Steve Haner

So many Virginia employers faltered or failed during 2020, the remaining companies may be charged a special tax of $95 on each of their own employees in 2022. It will cover the unemployment benefits paid to workers somebody else laid off, the highest so called “pool tax” ever imposed, more than double the amount collected following the previous recession in 2012.

The total unemployment insurance tax (average) may reach $360 per employee in 2022: A base tax of $249, the pool tax of $95 and a special “fund builder” tax of $16. That is more than 50% higher than the previous peak tax in 2012.

The figures emerged this morning as the Virginia Unemployment Commission staff briefed a legislative oversight panel on the financial health of the state’s beleaguered Unemployment Insurance program, swamped by a record number of claims in the COVID-19 recession and hampered by administrative failures in dealing with claims that needed extra attention.

For details, here is the UI Status Report presented today, following the usual format. VEC also provided more information on Virginia’s employment history over time, by region, industry, and locality.  Continue reading

That’s Our Money. Give It Back.

by Kerry Dougherty

We’re rich! Really rich. Rolling in dough kind of rich.

Perhaps you heard: Against all odds, Virginia is ending the fiscal year $500 million in the black.

On top of that, state officials are drooling over another $4.3 billion in federal loot that is expected to drop momentarily.

Wait. There’s more.

Any day now, Virginia should get $6.6 billion from the feds for public schools, childcare, transportation and public health.

Unless my little iPhone abacus is wrong, that adds up to more than $10 billion spilling out of the state coffers.

That sound you hear is state officials clapping their hands as they decide where to blow the money. Continue reading

Protect Taxpaying Virginians From Coming Inflation

Time for a refresher course on the Weimar Republic?

by Steve Haner

First published this morning by the Thomas Jefferson Institute for Public Policy. 

One of big financial winners with the May 1 Virginia minimum wage increase is the state itself, because the entire raise is subject to a 5% state income tax. With its low standard deduction and personal exemption amounts, Virginia squeezes income tax out of even its lowest wage workers. Continue reading

State Tax Harvest Under Northam Expands Again

by Steve Haner

With the release today of the April 2021 Virginia state revenue report, a correction in an earlier post becomes necessary. Overall general fund state tax collections are not up 26% so far compared to four years ago, they are up almost 30 percent. Corporate income tax collections are not up 68%, but 86% over the same period four years ago.

Your correspondent regrets the error and admits jumping the gun after the March report knowing things would become more dramatic soon. Since the essence of good communication is repetition, expect another update in a month. And as has been the case for a while now, expect Governor Ralph Northam to seek to distract the voters from what is really going on. Continue reading

TCI Debate Rages in Comments on Proposed Rule

by Steve Haner

The political wannabes in both parties and the state’s media are continuing to ignore it, but the argument over the proposed motor fuel carbon tax called the Transportation and Climate Initiative rages in comments on the proposal flowing into its advocates.

The Thomas Jefferson Institute has also launched a short video (above), perhaps just the first, to alert the public through more populist means. It features owners of two regional fuel businesses, well known as major local employers and taxpayers. Without doubt, Virginia’s membership in TCI would shrink and perhaps severely damage those businesses.

The video was actually ready to use had the 2021 General Assembly taken up the issue, but Governor Ralph Northam did not ask for legislative permission to join the interstate compact involved. The state remains involved in the planning for the cap and tax and ration scheme, now set for 2023 in the states who agree to the compact.

If put in place, all fuel Virginia wholesalers would need to buy government-issued allowances to sell gasoline or diesel, in effect a carbon tax. The amount of allowances will be frozen to prevent the any growth in fuel sales, and then decline annually to force down consumption, in effect rationing.  Continue reading

Virginia Taxes New Firms Higher, NC the Opposite

The overall effective tax rate on various kinds of businesses in Virginia, and how they rank against the other 50 states. (Lowest = #1) Click for larger view. Source: Tax Foundation and KPMG LLC

 

by Steve Haner

Virginia is far more tax friendly to established businesses than it is to new ones.  That’s one major conclusion of a major state-by-state business tax comparison released today (here) by the Tax Foundation and KPMG LLC.

In neighboring North Carolina, on the other hand, the tax structure encourages new investment with more attractive rates for incoming businesses of several types. It has been a conscious strategy for that state’s political leaders for some time.

Instead of seeking to put an overall ranking on the state’s business tax climate, as has been done in the past or in other studies, the Tax Foundation devised eight imaginary firms in different industries and then calculated their effective tax rate in each of the fifty states. It used tax laws and incentives as they were in force January 1 of this year.

One of the principal authors is a former General Assembly legislative aide well known around our capital, Jared Walczak, now a vice president at Tax Foundation. This approach of comparing how the various states would tax a set of reasonably typical firms is a big step up from previous methods.  Continue reading

Corporate Tax Already Exploding in Virginia

by Steve Haner

First published this morning in The Roanoke Times.

With Virginia’s fiscal year now three-quarters complete, and basically one year since the depths of the COVID-19 recession, state tax revenues are soaring. Despite reports that the boom results from the economic rebound, it remains clear that changes in tax policy under Governor Ralph Northam are the major driver.

Usually, the state financial reports compare results year over year. Instead, compare the recent data to four years ago. Four years ago it was Governor Terry McAuliffe coming to the end of his term as President Donald Trump began work on what would be his legacy tax bill, the Tax Cuts and Jobs Act of 2017.

In the four years since the March 2017 report, the state’s overall general fund collections to date are up 26%, almost three times the basic inflation rate for the same period (under 9%.) That is an extra $3.35 billion compared to four years ago at the same point. That is just the General Fund, ignoring all the other ways the state taxes us, such as last year’s gasoline tax increases.

About half of the added General Fund revenue came from individual income tax withholding, up 17% or more than $1.5 billion. It is the largest revenue category, so you would expect that to lead the pack. But it leads only in dollars, not in percentage growth.

Corporate income taxes grew 68 % over four years ago. The revenue category that includes the state’s tax on real estate transactions recorded at courthouses was up 72%. State policy didn’t spark the real estate price boom behind soaring recordation taxes. But intentional state policy has increased the corporate income tax harvest by two-thirds, to $315 million more than four years ago.  Continue reading