Sure, Give The Money To Everybody. Why Not?

The so-called Taxpayer Relief Fund to be created with the residual dollars from the 2019 state tax legislation has not seen the first dollar deposited and Governor Ralph Northam is already proposing to spend some of it, seeking to expand the refunds which were part of that bill to all Virginians.

The Richmond Times-Dispatch story on the proposal, which you can read here, quotes state officials as pegging the cost at a modest $18 million, with 98 percent of the recipients being exactly the people Northam sought to reach with his proposal to make the Earned Income Tax Credit into a grant program.

Well, why not?  The $110 per person, $220 per couple one-time grants already authorized for most of us really have no relationship whatsoever to the impact of conformity with the federal Tax Cuts and Jobs Act.  Whether your state taxes went up, went down, or stayed the same because of the federal changes, you will qualify for the grant.  The check will arrive before Election Day.

The only way not to get a check was to not have any tax bill at all, which is the case with many of the people enrolled in the EITC program.   The language which Northam is seeking to add to the state budget through an amendment will not mention EITC but will allow the grant for any taxpayer with zero tax liability due to any form of state credit.  So, a wealthy taxpayer who wiped out their tax with a land conservation easement will get it along with that single mother working the minimum wage job paying zero state income tax due to EITC.

Sending these grants to anybody isn’t tax reform.  It isn’t even tax policy.  Given it is basically a fig leaf attempting to hide a major tax increase, why not send the checks to everyone?   According to the newspaper account Northam’s idea has already been blessed by the Republican leaders of the two key House committees, but reluctance was expressed by Senate Majority Leader and Finance co-chair Thomas Norment.

There came a point late in the game on this tax issue when it was clear Governor Northam and the Democratic legislators were going to demand something in exchange for their votes on the conformity bills, which needed super majorities.  This is what I expected them to demand, but instead they talked the Republicans into higher effective taxes on the wealthy by restoring a cap on deductions known as the Pease Limitation.

State tax filing season is well underway, and by the deadline of May 1 most people will know what the 2019 legislative decision to conform to federal law – with no tax policy changes to reduce the impact – did to their state income taxes.   We took no itemized deductions for the first time in 40 years.  The one policy change that matters for most people, a slight increase in the standard deduction, goes into effect for 2019 but had no impact on their 2018 liability.

The General Assembly did make policy changes retroactive to 2018 on two business tax issues, one mainly important to foreign-owned or multi-national corporations, the other subsidizing corporate debt.  Draw what conclusions you will about how that speaks to the legislature’s priorities – and you will be dead on correct.   Feel free to move on to deep distrust that the Taxpayer Relief Fund is anything but a political smokescreen that will disappear in the wake of the next election.

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5 responses to “Sure, Give The Money To Everybody. Why Not?”

  1. Keep following the dollars, Steve.

    Once the tax-and-spend issues are definitively resolved, I’d love to see your final tally of the impact of the 2019 session on taxpayers and ratepayers.

  2. I ended up taking less retirement income in 2018 (did less IRA conversion to Roth) to shelter from the Va. tax increase. The TCJA reduced Federal Tax bracket from 25 down to 22% which would semingly encourage taking more retirement income, but that was negated by the Virginia tax increase for us.

    Meanwhile we paid less Va. tax than maybe ever. They cannot get me! Although next year we may just have to ante up and pay the piper.

  3. LarrytheG Avatar

    Well the thing is , and illustrated by TBILL – the more wealth you have, the easier it is to shield it from being taxed – at least at higher rates. But you do have to know the tax laws to know what to do.

    I’m not understanding exactly what taking an IRA distribution and moving it to a Roth does though as the IRA is taxed when you take a distribution on it.

    There are some schools of thought that the benefit of tax-advantaged things like IRAs may not be the same for everyone especially higher income folks but again – your mileage may vary depending on the quality of advice you get.

  4. […] the General Assembly decided last year to respond to the income tax windfall with small, one-size-fits-all and one-time-only tax rebates, it was highly questionable policy.  But good or bad, it ought to be uniformly applied.  It made […]

  5. […] the General Assembly decided last year to respond to the income tax windfall with small, one-size-fits-all and one-time-only tax rebates, it was highly questionable policy. But good or bad, it ought to be uniformly applied. It made […]

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