Source: Tax Foundation
An average tax collections per capita of $4,560 ranked Virginia 23rd in the country for highest state and local tax burden in Fiscal 2016, according to the 2019 Tax Foundation report. That’s up from $4,204 and a 26th rank in Fiscal 2014.
Is it worth it? Are we getting a big bang for our buck, or are we, as the northernmost Southern state, becoming more and more like the Northeastern and Mid-Atlantic states?
Virginia’s most effective tax collector is inflation.
Virginia’s long refusal to adjust any element of its income tax for slow but constant inflation means that each year, a slightly higher percentage of your growing income is taxed, and the rising costs of living shrink the value of the standard deduction and push more of your income into the top tax bracket.
In 1990 Virginia’s income tax looked like it does today – an $800 personal exemption, a $3,000 standard deduction for a single taxpayer, and income above $17,000 was taxed at the maximum rate of 5.75 percent.
Had the 1990 tax code also included a provision to adjust those amounts annually for inflation, today the personal exemption would be $1,578, the individual standard deduction $5,916 and the top tax rate would not kick in until $33,524. The higher personal exemption and standard deduction combined would eliminate the tax bite on almost $9,000 income for a family of four – saving over $500.
Senate Finance Committee data highlights the “conformity” tax impact on Virginia corporations. The Governor’s Office data lumps in all forms of businesses, implying a smaller impact on Virginia business. (Click for larger view.)
In proposals which would further distance Virginia from the tax reforms of President Donald Trump, the General Assembly is being asked to let Virginia corporations keep two major deductions no longer allowed at the federal level.
If the General Assembly agrees, the chance for a general corporate income tax rate reduction probably goes away. The protection of a well-connected few will outweigh a possible benefit to the many, which seems to be what always happens when Virginia tries tax reform.
U.S. retail gasoline prices adjusted for inflation. Source: EIA . The blue line is the adjusted price, looking back into the 1970s. Note the peak just about when Virginia thought it wiser to tax a percentage of price rather than a fixed tax per gallon. Find the interactive version here: https://www.eia.gov/outlooks/steo/realprices/
In the middle of a booming economy, with many state revenue sources surging, flat transportation revenues were the focus of warnings Monday in presentations by Virginia Secretary of Finance Aubrey Layne and Secretary of Transportation Shannon Valentine.
“I think we are heading for a cliff,” Layne told the House Appropriations Committee. “For the first time in our history, we’re seeing no increase in fuel tax revenue while vehicle miles traveled goes up.”
The House Finance Committee will hold its first meeting of the 2019 General Assembly Monday morning, finally starting public discussion of Virginia’s response to a major federal tax overhaul from 13 months ago that will…
No! Belay that! All House bills dealing with how Virginia conforms to that federal change, and what other policy changes might follow, have been assigned to the House Rules Committee, chaired by Speaker Kirk Cox and meeting whenever the Speaker decides for it to meet. The one bill on the issue assigned to Finance is likely to also be referred to Rules tomorrow.
Are You In The Hugo Zone?
Delegate Tim Hugo (R-Centreville) is the point person for a state income tax proposal centered on less-than-full conformity with the federal Tax Cuts and Jobs Act. It only helps a narrow subset of Virginia taxpayers, those in The Hugo Zone. We will now try to take you there. (If you want to imagine Rod Serling’s voice in your head, feel free.)
Under straight conformity, as proposed by Governor Ralph Northam, a taxpayer taking the federal standard deduction would be stuck with the state standard, as well. Under straight conformity, deductions for local taxes on either return would be capped at $10,000. Hugo, standing Friday with several key House Republicans, announced a bill to put Virginia out of conformity on those two points.
Virginia’s House Republicans on Friday rolled out proposed changes in the state income tax which backpedal from the signature accomplishment of President Donald Trump’s first year, his tax reform package which supercharged the economy. They would conform Virginia’s taxes to the new federal law only in part (more details here).
One of the best policy provisions of that 2017 Tax Cuts and Jobs Act (TCJA) is a $10,000 cap on the deduction for state and local taxes (SALT). No longer will the federal government subsidize out-of-control local and state taxes, and the state of Virginia should do likewise and cap the deduction for local taxes.
The Northam Administration’s plans to spend most of the additional revenue created by federal tax reform may not prove popular if the public understands the alternative plans for real tax relief under consideration.
Three weeks ago, I complained that a poll from the Judy Wason Ford Center at Christopher Newport University didn’t ask the right questions, so the Thomas Jefferson Institute for Public Policy paid Mason-Dixon Polling & Strategy to add a private question to its recent poll of 625 Virginians. We added just the one question to clarify one aspect of the debate, with the results announced today.
The poll was in the field nearing its end when Governor Ralph Northam released his budget, which did indeed call for spending most of the federal tax change windfall over the next several years. One way he proposes to spend it is by expanding the existing state Earned Income Tax Credit into a program which pays cash grants to low-income Virginians. Is that expanding an existing program? Close enough.
Two examples showing results from the EITC Refund Calculator (Commonwealth Institute). There is no benefit to taxpayers earning $30,000 or more. An increase in the standard deduction benefits them instead.
The Earned Income Tax Credit (EITC) proposal that Virginia Democrats are pushing for passage in the 2019 General Assembly is being sold as a major financial boon for the middle class, but is it?
“Our working families making $54,000 a year or less are not going to see a big benefit from these federal tax changes,” Governor Ralph Northam told legislators on December 18. “Those are the Virginians who already see a disproportionate part of their paychecks go to taxes. They deserve to keep more of their paychecks.”
Northam is off by more than $25,000. Using the simple EITC Refund Calculator on the website of Commonwealth Institute for Fiscal Analysis, the EITC’s strongest proponent, it becomes clear the EITC grants will mainly go to taxpayers earning $25,000 or less, and the rhetoric about middle class families is misleading. For taxpayers earning more than $25,000 the benefit from his proposal disappears quickly. Continue reading
Gilet Jaune
I keep wondering when the new French fashion rage, the yellow safety vest or gilet jaune, finds its way across the Atlantic. The next few weeks may provide some motivation in Virginia, because the General Assembly returns with financial pressures high and consensus in short supply.
Tuesday morning the 2019 General Assembly sees its opening ritual, with Governor Ralph Northam standing in front of the combined money committees to outline his financial plans. The speech is probably written, the cartons of printed budget bills probably on a truck heading for the State Capitol, and the on-line posting has undergone its final edit.
On Friday, after skirting the topic in a major address to a business conference in Williamsburg, Governor Ralph Northam told a reporter that “he’s planning to ask the General Assembly to tackle business tax reform,” adding it would be “comprehensive.”
The reporter asked about it because of other comments made by Secretary of Finance Aubrey Layne and the President of the Virginia Economic Development Partnership, Stephen Moret. Since his arrival in Virginia, Moret has from time to time mentioned local business taxes as a hindrance to economic recruitment and business start-ups. He did that again Friday in his own presentation to the Virginia Chamber of Commerce.
For more than a decade local business taxes, especially two of them, have been the focus of the Thomas Jefferson Institute for Public Policy, among others. The taxes are generally despised by the business community, but local governments are highly attached to them, because they are a revenue source other than residential real estate taxes.
It’s all in how you ask the question.
The Judy Ford Wason Center for Public Policy at Christopher Newport University has done a pre-General Assembly poll testing various issues that may dominate the 2019 session. The headlines are driven by the favorable and unfavorable rankings (ask me about President Tariff Man this morning as I survey my portfolio) and the apparent openness of Virginians to ending restrictions on gambling.
The poll’s authors took a dive into the complex world of tax policy, as well, seeking to tease out how voters view various moves related to the windfall tax conformity revenue. It could have been more useful. To start the discussion, here is the question they used:
Q8: Virginia is expected to receive as much as $600 million in additional tax revenue as a result of the recent federal tax reform. There are several ideas about what to do with this additional money. I’m going to read two of them and I’d like you to tell me if you support it or oppose each one.
The results were ambivalent, with a healthy portion of voters liking either approach. There were predictable partisan divides, with Republicans preferring the idea of a broad-based cut for all taxpayers and the Democrats leaning towards a tax credit targeted to the lower and middle income. But 59 percent of Democrats were positive on Q1 and 49 percent of Republicans were positive on Q2. Forced to choose by Question 3, the partisan divide appeared again.
The problem is those are not the choices, at least based on the discussions so far.
First, missing from the mix was the idea which may yet prevail, taking no steps to return the money. A fair additional option to give the poll respondents would have been: “Retain the money to increase the state’s financial reserves and spend it on other pressing state priorities.” Listing especially popular priorities would have pumped up the positives on that question.
That is the biggest and most important question: does the General Assembly keep the money or give it back? They didn’t ask it.
Second, nobody has proposed an across the board tax cut to all those who pay the income tax. We at the Thomas Jefferson Institute have come closest to that, with a proposal to double the standard deduction that might reach 70 percent of taxpayers, and we may tout the Wason result as supporting our case. But that is not a tax cut for everybody who pays, so they didn’t poll our idea.
Third, I doubt if more than a handful of people polled know what a “fully refundable” tax credit is (or a partially refundable one, for that matter). It sure sounds nice; everybody loves a refund – the word by itself may inject a bit of question bias. Which of course is why it has always been used to describe the Earned Income Tax Credit grant payments.
But imagine the answer to this question, which more accurately describes the proposal around the Earned Income Tax Credit: “Provide an annual cash payment to low- and moderate-income Virginians who do not owe any income tax but are still struggling to meet the needs of their families.”
There still would have been positive responses to that, but how many? Would it have proven to be as popular a choice as a general tax cut? More popular? We will never know. Will we hear repeatedly in the coming weeks that this or that idea has been “strongly supported in a poll”? Probably.
To borrow a line used about modeling, all polls are wrong, but some polls are useful. This poll unfortunately is not very useful because it left off the main choice – keep it or give it back – and didn’t really describe the two choices for giving it back getting the most attention.
I do commend the CNU center for releasing the full text, cross-tabs and demographics of their sample. Absent those, nobody should believe any poll result featured in the media or in campaign materials.
Many Virginians have qualms about the $550 million in job-creation incentives plus more than $1 billion in promised transportation and higher-ed investments it took to recruit a $2.5 billion Amazon facility to Northern Virginia. But things could be worse. Maryland offered an $8.5 billion package — and didn’t land the deal. The Washington Post is asking if the Old Line State, which pitched a Montgomery County location, has lost its economic-development mojo.
For the record, Maryland officials are putting on a positive face. They are delighted that Montgomery County was one of Amazon’s 20 finalists, and they say that the facility’s location in Arlington/Alexandria will send positive economic ripples throughout the Washington region.
But Montgomery County — the Fairfax of Maryland — has studiously refashioned itself over the past few decades as a walkable urban community with access to abundant mass transit, just the kind of urban fabric Amazon was looking for. The county has access to the same high-tech labor pool as Arlington and Alexandria, which snagged the deal. And the state offered $6 to $7 billion more in inducements than Virginia.
Anirban Basu, chairman of the Maryland Economic Development Commission, has been asking himself, “Why would Amazon turn away billions of dollars in subsidies to go across the river?”
Experts quoted by the WaPo pointed point to site-specific factors that favored Virginia. National Landing (the rebranded location in Crystal City and Potomac Yard that Amazon selected) is closer to downtown Washington, D.C., and so close to Reagan National Airport that Virginia has offered to build a walkway to link it to the Amazon office complex. National Landing has direct access to a Metro station, which the Commonwealth has offered to upgrade. And most of the property involved in Virginia’s bid is owned by a single developer, JBG Smith.
And who would believe this? Northern Virginia’s transportation infrastructure compares favorably to that of Maryland.
Northern Virginia’s transit and road networks also outpace the Maryland suburb’s. Virginia recently expanded its part of the Capital Beltway with tolled express lanes, and the second phase of Metro’s Silver Line, which will extend the subway to Dulles International Airport and into Loudoun County, is slated to open in 2020.
Finally, Basu cited Virginia’s “creative stroke of genius” in lining up $1.1 billion in higher-education support to build the computer-science talent pipeline. Virginia’s plan includes $250 million toward Virginia Tech building a $1 billion “Innovation Campus” near the future Amazon hub.
I would add another factor not mentioned in the WaPo article. Amazon has a history of working closely with Virginia officials and its largest utility, Dominion Energy, fostering development of Amazon’s cloud-services business in Northern Virginia. The company knows it can get things done in Virginia, whereas Maryland, where it has had little experience, is more of a cipher.
But Maryland’s competitiveness issue runs deeper. “One of the reasons Maryland created such a large incentive package for Amazon is because we know our business climate is not as competitive,” said Basu, whose Baltimore firm, the Sage Policy Group, conducted the state’s economic impact study of Amazon’s potential benefits but was not involved in the bid.
As the WaPo quotes regional economic analyst Stephen S. Fuller, 25 years ago economic activity in the Washington region was split equally among Northern Virginia, Washington and the Maryland suburbs. By last year, Northern Virginia’s share had grown to 48 percent, while the Maryland suburbs held about steady with 31 percent, and Washington had dropped to 21 percent.
Think about that. For all of Northern Virginia’s horrendous problems with traffic congestion, autocentric land uses, skilled labor shortages, lack of a top-tier research university, local-government unfunded pension liabilities, and some of the highest taxes in Virginia, it has been kicking Terrapin butt for two-and-a-half decades as measured by job creation. Writes the WaPo:
[Basu] has concluded that Amazon must have rejected the state’s “antiquated” regulations and higher taxes for corporations and top-earning residents. Amazon has said salaries at the new headquarters will average $150,000. Unlike in Virginia, Maryland jurisdictions impose a local income tax in addition to the state tax.
According to the Tax Foundation, Virginia is has a more favorable tax climate than Maryland almost across the board.
Personal income taxes
Virginia ranked 35th
Maryland ranked 45th
Corporate taxes
Virginia ranked 10th
Maryland ranked 22nd
Sales taxes
Virginia ranked 10th
Maryland ranked 18th
Property taxes
Virginia ranked 30th
Maryland ranked 42nd
Only in “unemployment insurance taxes” does Maryland compare favorably to Virginia, with a 28th ranking compared to Virginia’s 43rd.
Bottom line: Virginians get to keep more of their paychecks. When you’re a company recruiting high-end business and technical talent, that counts for a lot.
Update: I have edited the original version of this story to distinguish between Virginia’s “incentives” paid directly to Amazon and state and local promises to invest in transportation and higher-ed.
Posted in Economic development, Labor & workforce, Land use & development, Taxes, Transportation
Tagged Amazon, James A. Bacon
The Taxaginia Total: $1.7 Billion in 2020
The four taxes I wrote about in “Taxaginia” last month could reach a combined fiscal impact of $1.7 billion by about 2020. In preparation for a talk (which I will not get to give today after all), I did a bit more digging and some additional information has since come out.
The $611 million estimate for the state income tax hike resulting from conformity to federal tax changes is a Northam Administration estimate, known since summer.
The legislative money committee retreats last month produced a firmer estimate for the provider assessments (a.k.a. taxes) on private hospitals, with $719 million tagged as the revenue haul for 2020. (Don’t you wish you could develop a futures market on these estimates? That’s not going to hold.)
The Virginia Department of Taxation is now using $165 million as its projection of additional revenue once Virginia revises its sales and use tax to comply with the Wayfair decision and demand more tax collection by online merchants selling and shipping into the state.
The estimate on the carbon tax that will be imposed when Virginia joins the Regional Greenhouse Gas Initiative (RGGI) is a year old and is likely being revised as a new iteration of the regulation is considered. I’m using the number of $203 million, the upper range from last year’s Department of Planning and Budget estimate.
Under the newest version of the proposed regulation, electricity producers burning fossil fuels will need to pay for permission to emit 28 million metric tons of CO2, and the price per ton can only be estimated until the auction process gets underway. As it stands now, the plan is that all the money the utilities pay for their carbon rights will be returned to ratepayers somehow and not spike rates, but that mechanism is unclear.
Nobody Fights The Energizer Bunny
Not all the proposals Dominion Energy Virginia makes spark controversy. Proposed guidelines on planned pilot programs for utility-sized storage batteries have now cleared the State Corporation Commission. No objections were raised, no pile of testimony accumulated, and only a few tweaks were made to the original language.
One provision in the massive 2018 electricity regulation revision authorized Dominion to install up to 30 megawatts of storage, and Appalachian Power up to ten megawatts.
Another New Option for Customers Who Want Renewable
Also uncontroversial, but far more complicated, is a new choice offered to large electricity customers, the so-called Schedule RG tariff. This is a way for a Dominion Energy Virginia customer to buy exactly the kind of renewable power desired, but still remain under the umbrella of Dominion’s existing monopoly.
Attorney Will Reisinger of the Richmond firm GreenHurlocker has written about the SCC’s approval of the new tariff on that firm’s blog. Limited to 50 large customers, it is designed to prevent any costs being borne by non-participating customers, in contrast to a recent solar project.
Reisinger represented Mid-Atlantic Renewable Energy in the case, and other participants included Wal-Mart Stores and Sam’s East, Inc., possible customers for the new rate schedule. Your correspondent admits he has not plowed through the record but relies on Reisinger.
“Finally, it is important to note that Schedule RG was not approved under Va. Code § 56-577 A 5 and would not constitute a 100% renewable energy tariff under this statutory provision,” Reisinger wrote. “As we explained in our Regulatory Guide, this Code section authorizes any Virginia customer to purchase electricity “provided 100% from renewable energy” from non-utility suppliers, so long as the customer’s incumbent electric utility does not offer an SCC-approved tariff for 100% renewable energy.
“Therefore, if Dominion received approval to offer a 100% renewable energy tariff pursuant to Va. Code § 56-577 A 5, Dominion customers would lose their existing rights to shop for such energy.
“Currently, no Virginia utility offers an SCC-approved 100% renewable energy tariff. Dominion and Appalachian Power have both applied for approval to offer such tariffs, which thus far have been rejected.”
So that one chink in the utility monopoly remains.
And Finally, A Stunning Endorsement for Bacon’s Rebellion!
The following excerpt is from no less than Blue Virginia! It was part of a piece where Jim Bacon was attacked for being a damnable climate-denier, of course, and the Richmond Times-Dispatch was roundly condemned for hiring him, but it also included this:
Let’s be clear: Bacon’s Rebellion material is sometimes entertaining and, in some of the material, has a form of wonkiness that can be attractive/engaging for policy nerds. On its best days, it can provides (sic) valuable windows and thinking about policy interests with enough substance that can enable thoughtful engagement.
A useful EITC example from the Commonwealth Institute’s website. Whether anybody “earns” a credit is debatable, but that claim will appeal to those who benefit.
With the 2019 General Assembly now a handful of weeks away, the main advocacy group for a new cash welfare entitlement in Virginia is ramping up its efforts with various appeals, perhaps testing themes for later use.
On Wednesday on its website the Commonwealth Institute for Fiscal Analysis was arguing that the state Earned Income Tax Credit (EITC) should be converted to a “refundable” cash grant because of how it would help “communities of color,” who pay a larger percentage of their income in state and local taxes.
A few weeks back, the focus was on how “veterans and their families deserve full credit.” And, of course, they have broken down their data by legislative district, conflating the number of people who claim the EITC already with the number who would benefit from their idea. Not everybody who now claims the state EITC would qualify for a grant.
The first to advocate for converting the tax credit into a cash payment was Governor Ralph Northam, who mentioned it last summer as his favored use for the windfall state income tax dollars generated by conformity. It has nothing to do with that windfall. In order to benefit from this idea, you already must be paying zero state income tax.
In recognition of that, the argument now is people need to get the balance returned in cash because they are still paying sales, excise and other taxes, just not income taxes. It’s not good enough to zero out their income tax, advocates claim.
As previously explored, the Earned Income Tax Credit is a program with conservative credentials and has succeeded in improving the finances of low-income working families. At the federal level, if your income and family size qualify you for a credit which is larger than your tax bill, the difference is sent to you in cash. To call it a “refund” is political fiction, because it is not cash you paid in taxes to start with. It just comes at the same time the rest of us are getting refunds.
The federal version has grown into a major income transfer program, about $60 billion annually, and as always with these programs the push to expand them is constant. A Democratic House of Representatives will be more attentive.
In an earlier tax reform effort, Virginia added its own version of the program, allowing a credit against state taxes equal to 20 percent of the federal EITC. But Virginia did not take the second step of paying cash grants from state revenue to people who had larger credits than tax bills. That is what Northam and the Commonwealth Institute are talking about doing now.
The cost impact is about $250 million, based on an earlier legislative proposal which failed, but a full analysis is lacking. The cost to taxpayers – and it is a cost to taxpayers, not a refund and not tax reform – will need to be more carefully spelled out when a bill finally appears. Advocates have developed a calculator for individuals and for some the grants would be substantial.
While this proposal is not tax reform, but instead is a way to share the windfall revenue with low-income working families, the idea is not incompatible with tax reform. It would be possible to couple it with an increase in the standard deduction or some other change in personal income taxes that actually aligns with to the conformity windfall. It is only a question of how much revenue with which the legislature is willing to part (for some, the answer is none).
The proposal to expand the standard deduction would reach far more Virginians – more in “communities of color,” more veterans, more in every legislative district – than would turning EITC into a cash grant. The problem for some on the left is they would not all be poor or working-class and might even be well-off.
What they would not be is the same people. As noted before, to qualify for the cash grant Northam and the Commonwealth Institute are talking about, you already must be paying zero state income tax. If the EITC credit has already wiped out your state tax bill, an additional standard deduction is of no value.
But there is this, which should appeal to the Commonwealth Institute: The additional standard deduction would add to the number of people who pay zero income tax. An EITC cash grant would go to those already paying zero but would not grow their ranks.
And this: The additional standard deduction would stay with you as your income grew. EITC – whether a credit or both a credit and grant — shrinks as your income grows, and that is what people really want, growing income.
If the General Assembly must choose, it should choose tax reform and increase the standard deduction. If its willing to do both, well, this is why the legislative process is great theater. It cannot be predicted.
Posted in Entitlements, Poverty & income gap, Social services, Taxes
Tagged Conformity, Stephen D. Haner
