The Hard Truth: Virginia Is a Low-Tax State

Never let it be said that I refuse to publish information that contradicts my pet theories. The Kaine administration is touting two studies affirming Virginia’s status, despite recent tax increases, as a “low tax” state.

The Tax Foundation ranks Virginia 41st in state/local tax burden (with 1st being the worst) — an improvement since the 1970s, when it logged as high as 34th in the nation. State/local taxes amount to 9.5 percent of state income, compared to 10.6 percent nationally.

According to the Council on State Taxation, Virginia has the lowest state/local business taxes in the country expressed as a percentage of gross state product: 3.7 percent compared to 4.8 percent nationally. Let that sink in — lowest business taxes in the nation. Pretty impressive.

I still would argue that in a globally competitive economy, Virginia needs to focus relentlessly on driving down the cost of state/local government while at the same time ensuring the efficient functioning of core obligations. Just because we’re one of the better states in the nation doesn’t mean we’re good enough to maintain our prosperity in the face of competition from China, India, the Asian Tigers and the more dynamic European countries. Still, intellectual honesty compels me to concede that, in light of these studies, it is difficult to argue that Virginia is grotesquely overtaxed.

Update: For another take on these studies, read Dan Radmacher’s column in the Roanoke Times. Too bad he uses these studies as a launching pad to justify higher taxes for transportation!

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8 responses to “The Hard Truth: Virginia Is a Low-Tax State”

  1. James Atticus Bowden Avatar
    James Atticus Bowden

    I wonder what we are on per capita tax burden.

  2. Charles Avatar

    It’s only hard to argue we are overtaxed if you presume that average taxation is appropriate taxation — then we are in great shape.

    But what if government is simply overtaxing all of us in the nation? What if the state with the lowest tax burden is actually overtaxing it’s citizens?

    Overtaxation is an absolute, not a relative measure. We could be the most-taxed people and NOT be overtaxed, or the least-taxed people and still be overtaxed.

    The simplest measure of overtaxation is this — if we are running a surplus and spending money on stupid things that government has no business doing, we are probably overtaxed.

    Anyway, isn’t it a bit hypocritical for Kaine to be bragging about our standing tax-wise when he is trying to move us up a few notches with a new billion-dollar-a-year burden?

    Last thing — does that study examine every type of collection? Does it include proffers? Does it include tricks like doubling fines, or payments for alternative-fuel license plates and vanity plates?

    OK, New last thing — if we are so low-taxed, why didn’t Kaine have the integrity to tell us that last year when he was running for office, instead of lying to us and telling us the 2004 tax increase was it and we now had to live “within our means”?

  3. Toomanytaxes Avatar

    Perhaps part of the reason taxes are so low in much of Virginia (thus, affecting the state average considered in the study) is that most local jurisdictions in Virginia are subsidized by higher taxes in NoVA. Looking at statewide averages does not offer a complete picture. Calculate real estate taxes per capita, by county and city, as a percentage of adjusted gross income per capita, by county and city. The effort p[roduces some eye-opening figures.

  4. Ray Hyde Avatar

    “Last thing — does that study examine every type of collection? Does it include proffers? Does it include tricks like doubling fines, or payments for alternative-fuel license plates and vanity plates?”

    “Calculate real estate taxes per capita, by county and city, as a percentage of adjusted gross income per capita, by county and city. The effort produces some eye-opening figures.”

    Here is an example of what I’ve been trying to say about metrics. We can twist and distort the figures only so much, and display them to promote our own agenda only so much. Eventually we will come to a meeting of the minds that says, OK here is a way we can display the data we agree on.

    THEN we can figure out how to do better, and agree on a path forward. In a sense this is EMR’s argument: it takes an educated population. But if we start with a preconceived notion and then gin up the figures to support it; if we refuse to accept truths that don’t fit our personality, then all we’ve got is Donkeys, Elephants, and RINO’s.

    We can’t ever find out what the numbers really are without sunshine and true government accountability: what do we get for what we pay, and who really pays.

  5. Anonymous Avatar

    It’s great watching the ideologues squirm and wiggle like worms on a hot rock when the facts don’t match their preconceived notions….

  6. Ben Kyber Avatar
    Ben Kyber

    I agree that our status as the state with the 41st lowest state/local tax burden and lowest state/local business tax isn’t going to save us from the economic advances of India, China, etc.

    But I don’t think that tax burden necessarily has a whole lot to do with that anyway, persay.

    I mean, if Company A wants to move its operations, and Virginia is interested in attracting Company A, it seems like it would be a better solution to partially subsidize the companies moving costs (and even some operating costs) by using taxes of state residents rather than simply offering Company A a lower tax rate.

    I just don’t see how we can attract business to Virginia solely by trumpeting our low business taxes. Low taxes aren’t going to offset the cheap labor, etc. that other countries can offer. It really seems that if Virginians want to keep their economy strong, they may have to pay up to attract the business necessary to do so.

    Then again…I could just be way off base…

  7. Toomanytaxes Avatar

    Ben Kyber: Here’s something to think about. At least in the Metro D.C. area, only 42% of the workers are involved in the local economy. The rest are involved in such things as federal government and federal contractors, national and international businesses, lawyers, consultants, etc. To a large number of us, the state of Virginia’s local economy is immaterial to our economic well-being.

    Moreover, when one considers Virginia’s tax and spending structure, under which NoVA residents send dollars to Richmond, but receive only pennies in return, a good argument can be made that the payment of any public price to develop the local economy provides little benefit to many. I’m not arguing that no one benefits from these efforts, only that the benefits flow to a minority, such that it might be unfair to require all taxpayers to fund these efforts. Take a lawyer, for example, who practices federal law and has no Virginia-based clients. She or he probably benefits very little by paying taxes to promote Virginia’s development. Such a person might be better served by seeing growth in Texas or California where his or her biggest clients might operate. Just something to contemplate. In terms of economic development, we aren’t all in the same boat together.

  8. Ray Hyde Avatar

    While we are doing mea culpas, I’ll throw one on the fire.

    I have argued that the proposition that low density developmet wastes fuel and causes congestion is ot proven. I now have a citation that appears to be well documented and without a dog in the fight, concerning fuel consumption.

    According to this study, after other factors are accounted for, a family of similar economic status in a low density location will burn 65 gallons more fuel per yeear than a family in a high density location. However, oly 44 gallons is attributable to location alone. The other 20 gallons is due to choice of larger vehicles.

    “The model predicts that fuel usage increases linearly with income, and this is caused by
    all three factors. Higher income translates into: (1) choice of lower density residential
    location, (2) greater total driving distances, independent of the greater distances caused
    by lower densities, and (3) lower overall fuel economy of the household fleet.”

    the model also shows that a greater percetange of high income residents choose to live in low density areas. Therefore, the argument that people would choose higher density if it was available and if more people could afford it appears to be false.

    The article does not address the issue of congestion, or of time spet in travel, but we now have a benchmark for the increase in mileage and fuel as a result of density. The figure appears to be around 10%.

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