Taxaginia Reappears As Special Session Looms

Another try at imposing a Virginia estate tax this month?

By Steve Haner

It must be a reflex. Waken or startle a Democrat and they shout, “raise taxes!” Our friends at the Commonwealth Institute for Fiscal Analysis came out Monday with a new list of (mostly old) tax proposals for the August 18 General Assembly special session. It drew the attention of Virginia’s Public Radio in a report this morning.

Keep in mind, it is still unknown (to us anyway) how much (or little) cash the state accumulated to carry forward into the new budget cycle that stated July 1. And nobody outside of state government has seen the new Fiscal Year 2021 and 2022 revenue forecasts, showing the impact of the economic-shutdown-induced recession. We see those August 18. Why wait for actual data before proposing new tax hikes? 

For that matter, nobody can be sure yet just how much money the tax increases already approved by the 2020 regular session will extract from Virginia businesses and individuals. That might also be clearer come August 18. The tobacco and motor fuel tax increases landed hardest on those low income taxpayers the Commonwealth Institute seems most concerned about.

No, the General Assembly is back in town, so tax hikes must be sought, including proposals the Democratic majorities rejected just a few months ago. The wish list is worth reviewing, even if there is no sign legislators are rushing to introduce them. The rules for the special session might even preclude them.

The largest tax hike proposed would add more steps to Virginia’s income tax ladder, with higher marginal rates at $100,000, $500,000 and $1 million of taxable income. Now the top rate of 5.75% starts at a low $17,000 of income. Raising that in 0.75% or 1% increments would raise substantial revenue, of course, and have a disparate impact on high income regions.

Corporations can never pay enough in taxes to satisfy these people, so they are back with the idea of forcing all corporations into a tax accounting straight jacket called “mandatory combined reporting.” They also want to take another stab at creating a Virginia-specific tax on personal estates.

The new wrinkle is these are racial justice issues now.

Because corporate taxes and estate taxes are largely taxes on wealth, these policies would likely also reduce racial inequality. … Inheritance and wealth are linked; for white households, their higher likelihood of receiving an inheritance and the larger average value of inheritances received may explain part of this divide. Adopting these policies to support public investments would help to build greater opportunity more broadly across the state.

Then they go after The Average Taxpayer, not a millionaire, with a proposal to expand the retail sales tax to digital platforms, such as the streaming services which have boomed during the pandemic. A Netflix tax. The lousy $20 million that tax change would raise is hardly worth the political hubbub that it would stir.

Done with The Average Taxpayer, they turn to the Small Business Owner and seek to eliminate the minor fee paid to small businesses that collect and remit their state sales tax receipts manually. The big companies have all moved to on-line remittance, with the loss of that fee. Sure, let’s eliminate one more revenue stream for struggling little business startups. That’s a truly moronic suggestion in this climate, for peanut-sized revenue.

Enmity toward jobs is also displayed in the proposal to disallow any state deductions for Opportunity Zone qualified investments. “The Opportunity Zones program has been criticized because of concerns that it will contribute to gentrification and displacement.” Aha! That was the real purpose of burning down those businesses in central cities, a move to stop gentrification. Well they got that done. Why give any new investors an incentive?

They can have their last idea, putting a tight cap on the land preservation tax credit. Everybody knows the highest and best use for Virginia’s trees or pastures is to be cut, plowed and covered with solar panels. Any other use is a waste. But I’ve never been a fan of that particular tax break.

Virginia is actually desperately in need of a full review of its tax policies, and there might be some common ground for a serious discussion. One reason I hang around the Capitol like Banquo’s Ghost is hoping for such an effort. This is not a starting point for that.

Besides, Republicans have reflexes too, and one of them is that raising taxes is not the proper response to move out of a recession. Yes, the state is in fiscal stress now. When everybody thought it was a great idea to shutter the economy, some of us mentioned that might happen.

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20 responses to “Taxaginia Reappears As Special Session Looms

  1. Well, it’s the worst of all worlds because if the State and Localities cannot maintain tax revenues at prior levels – there will be layoffs, and schools will be affected…which will then push the economy further into a downward spiral…

    on the tax subject – what is wrong with taxing services if we are more and more a service economy?

  2. Local government layoffs. Bring them on. Fairfax County has gone through two farcical “lines of business reviews,” only to discover everything it does is essential. Of course, employees did the analysis. Drop 5% of staff positions and freeze pay for everyone over $200 K.

  3. I was made to feel a pauper when I heard one of the school super’s salaries, but I digress. Electric vehicles are less affordable here due to our ridiculous car taxes. We need to exempt EV’s from car tax and probably give them tax credit and discount electric recharge rates for car charging, And also we need to extend the $7500 Federal tax credit, and put charging stations all over the place. EV is the future and we need to mandate the rapid change…actually I am not a big fan of either car tax or EV mandates, but its probably coming soon to a state near you.

    In general I feel like we tax NoVA too much and we tax the $100K-$200K income group really hard. Higher incomes and lower incomes benefit from our tax structure, while those of us us the middle get slammed. I hope if they do a death tax it is something like Federal and not clobbering the mid incomes again.

    Some of the new taxes, e.g. the recent gaso tax increase, I like in part because everyone in the state is paying that, not the usual “make NoVA-only pay the taxes”.

  4. How should we pay for roads? Should everyone that uses them pay a share no matter what kind of car they use?

    The car tax – for newer cars – where I live is outrageous but I am told this is needed to pay for schools and is used to extract money for schools from those who don’t own property… and in general that those who own new cars are “wealthier” than those who own older ones.

    I don’t know the answers but roads have to be maintained and schools funded so lowering taxes on one thing just causes higher taxes somewhere else so the main game is “you gotta pay” – if you don’t like the current way, then another one will take it’s place.

    Any proposal to actually cut back money for roads or schools will cause it’s own uproar.

    No one likes potholes and no one likes schools with class sizes of 40.

  5. Thanks for the re-cap, Steve. I don’t see anyone else writing about this. Most Virginians are sublimely ignorant of the wave of taxes that hit them the past two years, and ignorant of the new wave that is fast approaching. Of course, most of these taxes are obscure, and there’s no way of knowing about them unless someone reports them!! People don’t understand how they’re being bled to death by a thousand small cuts. You are doing an important public service.

    • “You, Steve, are doing an important public service.”

      I endorse Jim’s comment.

      • Thanks. Actually, Michael Pope at the NPR outlet called it to my attention, and gave me a chance to offer a soundbite. But his reports are so short and some subjects require more detail.

  6. James Wyatt Whitehead V

    The land preservation tax credit cap will get noticed in Fauquier County. Very popular and widely used around here. The many heirs to the Paul Mellon estate love it. This one could even stir up the ghost of Mosby!

  7. Holy moly. I read “taxaginia” too quickly and almost had a heart attack!

  8. I was actually thinking of something else

  9. A special session would be an inappropriate (read, stupid) forum for tax increases.

  10. This is what the GOP typically wants to do:

    ” Kansas experiment

    The Kansas experiment refers to Kansas Senate Bill Substitute HB 2117, a bill signed into law in May 2012 by Sam Brownback, Governor of the state of Kansas.[1] It was one of the largest income tax cuts in the state’s history,[2] which Brownback believed would be a “shot of adrenaline into the heart of the Kansas economy”.[3]

    The cuts were based on model legislation published by the conservative American Legislative Exchange Council (ALEC),[4][5][6][7] supply-side economist Arthur Laffer,[8] and anti-tax leader Grover Norquist.[9] The law cut taxes by US$231 million in its first year, and cuts were projected to total US$934 million after six years,[10] by eliminating taxes on business income for the owners of almost 200,000 businesses and cutting individual income tax rates.[10] Brownback compared his tax policies with those of Ronald Reagan, but also described them as “a real live experiment”,[11] and had predicted that by 2020 they would have created an additional 23,000 jobs.[2]

    However, by 2017 state revenues had fallen by hundreds of millions of dollars,[12] causing spending on roads, bridges, and education to be slashed.[13][14] With economic growth remaining consistently below average,[15] the Republican Legislature of Kansas voted to roll back the cuts; although Brownback vetoed the repeal, the legislature succeeded in overriding his veto.[16]”

    Wanna know where Brownback is now? Not in Kansas anymore.

    He’s now the Ambassador at Large for International Religious Freedom

  11. “Because corporate taxes and estate taxes are largely taxes on wealth, these policies would likely also reduce racial inequality. … ”

    Wow. What an incredibly racist statement.

  12. “Adopting these policies to support public investments would help to build greater opportunity more broadly across the state.”

    And this statement is complete nonsense.

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