How to Create 79,000 Jobs without Really Trying

Norfolk unemployment office. Photo credit: Virginian-Pilot.

by James A. Bacon

In the previous post I discussed Virginia’s sluggish economic performance and the power of institutional inertia to discourage fresh thinking about economic development. One exception is a recent report published by the Thomas Jefferson Institute for Public Policy (TJI).

Calling upon the resources of Chmura Economics & Analytics and the Beacon Hill Institute, TJI President Michael Thompson asked if it were possible to restructure Virginia’s tax code to spur private investment and job creation.

In “Tax Restructuring in Virginia: A Revenue Neutral Path for Improving Our Economy,” Thompson’s team explored nine scenarios for eliminating three hated business taxes — the Business Professional Occupation Licensing (BPOL) tax, the Machine and Tool (M&T) tax and the Merchants Capital (MC) tax — and replacing lost revenue by means of a restructured sales tax.

According to the report, the optimum scenario would increase employment by 79,000 jobs over the baseline projection, bolster investment by $287 million, and pump up real state Gross Domestic Product by $8.4 billion. The key features:

  • Eliminate the BPOL, M&T and MC taxes
  • Eliminate the lowest bracket in the personal income tax ($0 to $3,000), and cut other income tax brackets by 10%
  • Expand sales tax to cover all exempt sectors of the service economy, except health care.

We can debate the particulars. How good are Thompson’s data and how valid is his economic simulation model? Can the results be improved upon by considering other scenarios. And, my main concern, would we be creating problems for ourselves by taking state tax revenues (the sales and income taxes) to reimburse local governments for lost BPOL, M&T and MC revenues? Governor Jim Gilmore did something very similar in partially phasing out the car tax. How did that work out?

Those issues are all worthy of discussion. But let’s look at the big picture. What other initiatives can you name that (a) are tax neutral and (b) have the potential to create 79,000 jobs over the next five years? If TJI’s idea creates only half the jobs forecast by its economic model, this idea is well worth pursuing.

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5 responses to “How to Create 79,000 Jobs without Really Trying”

  1. DJRippert Avatar

    Or, prevent our crooked legislature from handing out permanent tax breaks like free lollypops.

    Seriously, the situation with regard to company and industry specific tax breaks in Virginia is borderline criminal.

  2. I actually agree on getting rid of those three taxes but I’m skeptical about the 79,000 jobs. I’m ALWAYS skeptical about numbers like this that appear to be plunked out of thin air or some wonk study especially when someone else will generate a study showing how many jobs will be LOST when you increase sales taxes!

    “tax neutral” is an interesting phrase….

  3. Imposing the sales tax on services would likely have a negative impact on those companies providing professional services in Virginia. Loading the sales tax on IT, consulting, accounting, medical or legal services bills might shift work to non-Virginia firms. Even a crazy Governor like Mark Dayton (D. Minn.) took some pause at a proposal to put the Minnesota sales tax on services.

  4. Thompson has been peddling his snake oil for a long time and Bacon has reported on it before. Given how the conservative/Tea Party base reacts to any tax ‘increase,’ even those purported to be revenue neutral, I can see their loving acceptance of this idea. Their idea of tax ‘reform’ would be to eliminate those three taxes entirely because that would result in 179,000 new jobs.
    Also, it is extremely unlikely that the services who would be hit with the new sales tax for the first time, who have a large presence at the General Assembly and spend many dollars to rent senators and delegates each year would go quietly. The likely outcome would be the elimination of BPOL, M&T and MC taxes which would leave to the local real property tax to make up the difference. Bosun

  5. well, here’s some GOOD NEWS:

    ” Stafford County supervisors adopted a $253 million budget Tuesday night, after cutting three of the county’s smaller tax rates, funding the school system in categories, and setting up a “clever” scenario to waive the former car decal fees next spring.

    After a push from marina owners and boat enthusiasts, the boat tax was essentially zeroed, along with the machinery and tools tax, and motor carrier tax, which are tied together under state code. Combined, the three had brought in about $750,000 in revenue.

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