More Fun and Fraud with Numbers

by James A. Bacon

Let me preface this post by stating unequivocally that eliminating Virginia’s personal income tax is a crazy idea — so crazy that no serious person has proposed it. The tax generates $16 billion a year in revenue, or 72.4% of Virginia’s General Fund expenditures. The loss of such a sum would be catastrophic to the Commonwealth’s ability to provide basic government services.

According to Politifact, Republican candidate for Governor Glenn Youngkin briefly contemplated eliminating the state income tax. There is nothing inherently wrong with examining the possibility of doing such a thing. After all, several states — Florida, Texas, Tennessee, Washington — manage to do swimmingly without a personal income tax. However, any review of the situation would reveal that the dislocations in government services engendered by a massive re-engineering of Virginia’s tax base and budget would not be practicable, much less beneficial.

That said, some claims made against the idea are absurd. A Democratic Party of Virginia website, cited in a recent column by Arthur G. Purves, makes the claim that “implementing Youngkin’s tax plan” of eliminating the income tax (which was never his plan) would cost 2.5 million Virginia jobs. Out of a total workforce of 4.3 million. In other words, eliminating a tax accounting for 3.3% of the state’s GDP would destroy the equivalent of 59% of the state’s jobs over 10 years.

The same DPV statement cited as a source a Virginia Education Association “media advisory,” which in turn cited a “new independent study” — independent in the sense that it was performed by the National Education Association, not the Virginia Education Association. And it really wasn’t a study. The document, which Bacon’s Rebellion obtained this morning, refers to itself as a “report” summarizing findings from running the zero-income-tax scenario through a REMI (Regional Economic Modeling, Inc.) analysis.

That same analysis reaches the less-than-intuitively-obvious conclusion that eliminating a tax that accounts for $16 billion of the state’s GDP would  result in the loss of $182.5 billion in GDP over 10 years — twelve times more.

The NEA report does not describe the inner workings of its model. But it doesn’t take a PhD in economics to know that slashing $16 billion in taxes would offset the losses to some degree by letting businesses and consumers spend, save and invest more. Would that economic bonus counteract the chaos caused by a collapse of state government and disruption to law enforcement, administration of justice, corrections, K-12 education, higher education, Medicaid, business regulation? The negatives most likely would outweigh the positives — but you can’t say the positives don’t exist.

The report cites the Kansas experiment in which Governor Brownback enacted the largest income tax cuts perhaps in any state’s history in the hope that the cuts would give a “shot of adrenaline” for the economy. Didn’t happen. Economic growth slowed. But saying that economic growth slowed is a far cry from saying, as the NEA, the VEA, and Virginia Democrats have suggested, that comparable tax cuts in Virginia would result in an economic meltdown destroying three out of five of all jobs.

Youngkin opted for the prudent approach — returning a sliver of Virginia’s tax dollars to the taxpayers, as Steve Haner has commented upon in considerable detail. The tax cuts are modest in the face of surging state revenues, but they are sustainable, and they won’t wreck the economy. Indeed, Youngkin’s proposal would provide the first relief enjoyed by Virginia taxpayers in years.

As for the exercise of running a scenario that no one proposed… through an econometric model full of assumptions never explained to the public… and packaging the findings in a “report”… and repackaging the report as a “study”… and falsely labeling the findings as “independent”… well, you can draw your own conclusions about the worth of the resulting numbers. The phrase “bucket of warm spit” comes to mind.