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.
But here is what I got right:
- Looking back at that language amendment on the creation of this fund, intended to keep the opportunity open for additional tax reform, there is no clear justification for mixing the individual and corporate provisions. If the corporate tax revenue gain is excluded from the top line, then the corporate tax revenue reductions should be excluded when calculating the bottom line.
- Taking that step means there are more dollars available and a better argument to push for additional reform. Over four years the total in the relief fund could approach $460 million. It should grow over time. The General Assembly should look at this again, especially because Virginia’s existing standard deduction is way too low. That cries out for additional correction.
I can plead distraction or blame the excellent pre-tariff Bordeaux, but I just didn’t double check – and even in an opinion piece, the facts matter most.
Those two tax provisions for corporate deductions return very little of the extra revenue the state should collect from corporate income taxes under conformity. Apparently, the business community’s army of lobbyists was satisfied with just those tiny tweaks, leaving the rest of the money for the state to spend. So, I will give myself a half-right grade on my earliest prediction, that the state would keep the money.
I know this may be clear only to tax policy wonks. I return you now to your other social media distractions. My goal, despite what others may think, is simply to keep the focus on how the lack of a reasonable standard deduction is highly regressive. Why argue about raising the minimum wage if the state just taxes it back? There should be zero income tax on minimum wage workers.