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.

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18 responses to “More Fun and Fraud with Numbers”

  1. Nancy Naive Avatar
    Nancy Naive

    AKA My P-hack is better than theirs… maybe.

    1. Stephen Haner Avatar
      Stephen Haner

      When not running these economic impacts, the same models are turned to climate concerns….GIGO.

      1. Nancy Naive Avatar
        Nancy Naive

        I highly doubt they’re the saw. State a law of economics as solid as any of physics.

  2. James Regimbal Avatar
    James Regimbal

    Uhh Jim, the state income tax is expected to generate about $16 bil. this year – NOT $31.5 bil. You probably confused your number with a Biennial revenue estimate.

    1. You’re absolutely right. Thanks. I’ll fix the narrative when I get a chance later this afternoon.

    2. Stephen Haner Avatar
      Stephen Haner

      $15,991,400,000 to be exact. ๐Ÿ™‚ That’s personal, with another $1,271,600,000 from the corporate income tax. For this FY it is projected to be just under 70% of the total GF.

  3. Super Brain Avatar
    Super Brain

    TN has a 9.25 sales tax. FL gets theirs from tourists and TX from severance taxes.
    VA has a lot of crazy credits and exempts most over 65 folks from income tax from paying tax on all of their Federal income.
    The prudent path would be to look at the needs of the state and the proper balance of taxation to fund what is needed.

    1. Mark O Flaherty Avatar
      Mark O Flaherty

      Right on the money!! While some states don’t have income taxes they get the funds necessary to provide services (as they define) for their citizens through other taxes and fees.

  4. James Regimbal Avatar
    James Regimbal

    Don’t be surprised if the current FY 22 $16 bil. estimate is low by at at least $2 bil. Actual FY 2021 came in at $17.3 bil. Income tax revenues are still pouring in.

    1. Stephen Haner Avatar
      Stephen Haner

      Yep. Will watch and report on the 1Q numbers in about two week. ๐Ÿ™‚ With three months it will be enough data for a pattern.

  5. DJRippert Avatar

    Without quibbling over the details, all states raise money from taxes with which they fund their state and local governments. A handful, including some very successful states like Texas, do so without a personal income tax. Glenn Youngkin is a sophisticated financial expert. He never contemplated ending the Virginia personal income tax while doing nothing else. For example, Texas’ tax rate on residential property is about 2X the average rate in Virginia.

    The way Virginia finances its skyrocketing state government spending is just one way to skin the cat. There are other ways which should be at least conceptually considered.

    Talk about much ado about nothing.

    The Democrats must really be out of ammo if this is the best they can find.

    1. LarrytheG Avatar

      re: ” Glenn Youngkin is a sophisticated financial expert.”

      Indeed, and that’s why I expected a more sophisticated, more detailed proposal to include the Va budget.

      These other states without an income tax – make up that money on sales and other taxes – as well as lower spending on some services.

      But a good start might be to compare Virginia to the 7 no-income tax states on total tax burden that would include those other taxes.

      here’s a start:

      1. DJRippert Avatar

        Larry, My guess is that Youngkin made a decision about the political effort required to revamp the Virginia taxing regime along the lines of Texas. For example, counties set their real estate tax rates in Virginia. If the state wanted to use real estate tax money in lieu of personal income tax money then the state would have to mandate a certain level of taxation from real estate. Or, the state would have to leave more decision making for provided services up to the counties and let them collect the taxes to provide those services. Or not.

        Virginia’s strong Dillon Rule approach combined with its unique one-term governor requirement would practically restrict how much reorganization of the state finances any governor could accomplish.

        Youngkin quickly realized the political impracticalities of eliminating the personal income tax in lieu of other taxes during his one term in office. So, he never went forward with a financial analysis.

        1. LarrytheG Avatar

          That level of change would be so massive as to be a long dance – agree.

          But I still think he could have demonstrated a higher level understanding and articulated a different approach – but not as messed up as Gilmore did!

  6. Nancy Naive Avatar
    Nancy Naive

    ” so crazy that no serious person has proposed it.”
    Remember that when you vote.

  7. Nancy Naive Avatar
    Nancy Naive

    “The Republican Party has figured out one thing over the last 12 years, and that’s how to lose” – Glenn Youngkin

    1. Stephen Haner Avatar
      Stephen Haner

      Uh, yeah, but that shows once again this is a tight race. Both candidates bleeding similar from the wave of negative ads. Levels of turnout, enthusiasm gap if there is one, will decide. TMac is effectively an incumbent so that’s not so hot. In his case they could legitimately ask the “would you re-elect” question which I always find informative. My bet is he would show weakness.

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