A Shiv to Virginia’s Middle Class

The Richmond Times-Dispatch commentary section has launched an all-out assault on Governor Ralph Northam’s proposal to recycle about half of the $500 million windfall from federal tax reform into tax benefits for the non-income tax-paying poor. (Steve Haner gave an excellent preview of the issue on Bacon’s Rebellion a week ago.)

To Northam’s way of thinking, federal tax reform primarily benefits higher-income Americans. He wants to use about half of the the windfall — lower federal tax deductions would mean higher taxes for Virginians unless the Commonwealth changes its tax code to conform with the federal law — to benefit lower-income workers by increasing payments under the Earned Income Tax Credit. The balance would increase “investments” in broadband and workforce develoment. The great thing for Northam is that he doesn’t have to lift a finger. The General Assembly needs to enact legislation to make the federal law tax-neutral for Virginia taxpayers. Good luck with that. There is no way the legislature, divided almost 50/50 between Dems and Republicans, can pass a bill that would survive a veto.

I’m not happy about this development, and neither is the Times-Dispatch editorial staff. Today’s Commentary page includes:

  • An op-ed by Michael Thompson, president of the Thomas Jefferson Institute for Public Policy. The implicit state tax increase resulting from non-action, he says, will claw back about 20% of the benefits of the federal tax cut.
  • An op-ed by Nicole Riley, Virginia state director of the NFIB, the nation’s leading small business association. The state tax increase would disproportionately impact Virginia’s small-business job creators, she says.
  • The lead editorial in the Commentary section. Far from hitting “the wealthy,” as claimed by Democrats, Northam’s proposal could cost middle-class families as much as $750 a year in state taxes.

I can’t add much to these columns other than a little perspective. Northam’s plan to stick the middle class must be viewed in the larger context of public policy in Virginia. First, Virginia just enacted the expansion of Medicaid to benefit the near-poor (which has a large overlap with the individuals who would get more money from EITC). Virginia’s 10% share of that expansion will be borne largely by the general taxpayer — in other words, the middle class.

Second, Virginia’s institutions of higher education have been relentlessly increasing college tuition, fees, room and board over the past two decades, thus making the main ticket to a middle-class career and life increasingly unaffordable. While boards of trustees have increased their financial aid, most assistance goes to the poor and near poor. The middle class gets little or nothing.

Don’t pay attention to what the politicians say. Pay attention to what they do. Here in Virginia, the politicians are full of soothing words to the middle class even as they sink in the shiv.

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9 responses to “A Shiv to Virginia’s Middle Class

  1. Here is the Plantation is action, the governor buying democratic votes with other peoples money, including squeezing the already hurting middle class of the money they worked to earn, so as to keep the poor poor, and in their place, dependent on hand outs.

  2. Wrote the preview one quiet morning at Duck, and then dove back into the family vacation. Still haven’t reviewed the data from Friday’s presentations. Somehow watching the grandkids being joyous cousins at the N.C. Aquarium seemed a betters use of my time than streaming that meeting….

    Northam is just copying the traditional Democratic playbook and also is channeling somewhat the last governor given this opportunity, Gerald Baliles. Baliles also used the incoming windfall revenue to make the state income tax code more progressive (in the economic sense), but Baliles did it by tinkering with personal exemptions and the lower-end tax brackets, moves which actually benefited all taxpayers (but of course reduced the percentage tax bite on lower-income payers). Those moves could still work now and would take the steam out of the current line of attack.

    Kinda of ignored in the coverage so far, I think is the apparent (apparent) good news that the Governor and his finance team want to conform to all the federal changes -including the business provisions — and now it is the GOP taking the difficult position in favor of de-conformity on a huge provision, allowing taxpayers to take a standard federal deduction but to itemize state deductions. The problems with that approach are going to become clear quickly. One of the single best aspects of the federal approach, IMHO, is its restrictions on state and local tax deductions.

    The better GOP position would be to eliminate the bottom tax brackets entire – for all — and lower the 5.75 percent rate to, oh, lets say 4.5 percent. Or move the 5.75 percent rate up to $30K and above, truly lowering taxes on the middle class. Copy the feds – no deductions but far lower rates. That’s the flat tax plan that the GOP used to love.

  3. Haner got it right… but here’s a little more:

    a little complicated and thus easy to demagogue – and is..

    if you understand the following – you understand Northams (and Aubrey Lanes) thinking – which either the GOP does not understand or don’t/won’t and see this as an opportunity to make Northam look bad and roll him… in the media… but you can bet the Dems will go toe-to-toe with the GOP as they did with MedicAid…

    …. ” Taxpayers earning under $50,000 a year would receive about 7 percent of the federal tax benefits, while contributing almost 14 percent of the additional state revenues the law generates, according to a new analysis by Chainbridge Software LLC, a Northern Virginia consultant hired by the state.

    “They are the one group that’s not getting a net benefit overall,” Layne said in an interview.

    For example, a household earning less than $50,000 would receive an average federal benefit of $146, while paying $24.15 more to the state.

    In contrast, a household with income between $50,000 and $150,000 would receive an average federal benefit of $1,516, while paying the state $115.50. Those making more than $150,000 would receive an average federal benefit of $3,287 and pay the state an additional $297.

    “Overall, the new law will save almost $4 billion in federal taxes for Virginians, while increasing state tax revenues by $333 million in the current tax year for a net benefit of more than $3.6 billion.

    Almost two-thirds of returns will show a net decrease between federal and state taxes, while about 20 percent will show no change, according to the Chainbridge analysis. For 16.5 percent, the returns will result in a net increase.”

    https://www.newsadvance.com/news/state/virginia-officials-flush-with-policy-choices-on-taxpayer-relief-after/article_fc825e02-4635-5577-b1a7-69e533046758.html

    but here is another important issue that the GOP and RTD are basically ignoring:

    ” But the biggest question for legislators is whether to eliminate a provision of the 2013 transportation funding package that raised the wholesale gas tax after Congress failed to pass legislation to allow states to tax online sales.

    If Congress passes legislation in response to the Supreme Court ruling in June, the net loss in motor fuel tax revenue in Virginia would be $17 million a year.

    The state already faces a reckoning on motor fuels taxes. Gas tax collections fell almost $43 million below forecast in the last fiscal year, or almost 5 percent.

    credit Reporter a little complicated and thus easy to demagogue – and is..

    if you understand the following – you understand Northams thinking – which either the GOP does not understand or don’t won’t to and see this as an opportunity to make Northam look bad and roll him… in the media

    …. ” Taxpayers earning under $50,000 a year would receive about 7 percent of the federal tax benefits, while contributing almost 14 percent of the additional state revenues the law generates, according to a new analysis by Chainbridge Software LLC, a Northern Virginia consultant hired by the state.

    “They are the one group that’s not getting a net benefit overall,” Layne said in an interview.

    For example, a household earning less than $50,000 would receive an average federal benefit of $146, while paying $24.15 more to the state.

    In contrast, a household with income between $50,000 and $150,000 would receive an average federal benefit of $1,516, while paying the state $115.50. Those making more than $150,000 would receive an average federal benefit of $3,287 and pay the state an additional $297.

    “Overall, the new law will save almost $4 billion in federal taxes for Virginians, while increasing state tax revenues by $333 million in the current tax year for a net benefit of more than $3.6 billion.

    Almost two-thirds of returns will show a net decrease between federal and state taxes, while about 20 percent will show no change, according to the Chainbridge analysis. For 16.5 percent, the returns will result in a net increase.”

    but here is the part that the GOP and RTD are basically ignoring:

    ” But the biggest question for legislators is whether to eliminate a provision of the 2013 transportation funding package that raised the wholesale gas tax after Congress failed to pass legislation to allow states to tax online sales.

    If Congress passes legislation in response to the Supreme Court ruling in June, the net loss in motor fuel tax revenue in Virginia would be $17 million a year.

    The state already faces a reckoning on motor fuels taxes. Gas tax collections fell almost $43 million below forecast in the last fiscal year, or almost 5 percent.”

    Now you wanna see what paper printed the above analysis?

    BY MICHAEL MARTZ Richmond Times-Dispatch

    https://www.richmond.com/news/virginia/government-politics/general-assembly/virginia-officials-flush-with-policy-choices-on-taxpayer-relief-after/article_24faa972-56a9-5d96-b5a0-1a8d0cb708c3.html

    but what got printed HERE is BR? The “editorial”. tsk tsk

  4. Yeah, and it works every time doesn’t it. More folks at the beck and call of the politicians who play games with them, instead of enabling them to fend for themselves.

  5. By the way – a refundable earned income tax is fairly common:

  6. Yeah, but one of the downsides of Northam’s approach is the activists are already complaining that the EITC is not adequate and are pushing for it to be increased. It will become a moving target, another unlimited entitlement, if they have their way. Saw this in the Post:

    https://www.washingtonpost.com/opinions/dc-and-congress-can-help-families-in-financial-straits-heres-how/2018/08/10/a979fb0a-8f53-11e8-b769-e3fff17f0689_story.html?utm_term=.7dcc21be9c90

  7. geeze Steve – there are “activists” on all sides.. what is the middle ground on this that would be supportable by reasonable people as a reasonable approach?

    What is happening is a de facto roll back of the progressive nature of the tax code by modifying it so that higher income folks get bigger tax cuts than lower income and what Northam is trying to do – is keep it balanced.

    And he and Lane make a GOOD point in that refunds that go to the lower income go straight into the economy whereas tax cuts to higher income – do not. AND right now – we are literally awash in capital from people who have money and want to invest it while wages for workers are stuck – even as unemployment has gone down…

    What this means is that lower income people who often work in service jobs with no health care benefits – need Medicaid – a direct subsidy from other taxpayers…. What if these folks had more money to actually buy insurance?

    Stay with me – what if Northam put strings on the credits that they could only be used for health care – insurance or HSAs, etc?

    Hells Bells – what if – the Va GOP proposed that as a compromise alternative?

    Somewhere along the line – common sense and practical solutions ought to overtake raw partisan fist fighting….and demonization.

  8. “Stay with me – what if Northam put strings on the credits that they could only be used for health care – insurance or HSAs, etc?”

    That’d be silly. And impossible to enforce, so it would just be a cover story. You are right that the whole “flat tax” idea is very much the counterpoint to the traditional progressive income tax. Hang on, Larry. I need to stop responding to you and now read some of the data from Friday :).

  9. This entry’s focus on a “shiv” for the middle class shows appalling disregard for the costs of our increasingly polarized economy as well as disdain for the values of charity/love/caring for the less fortunate — a value virtually all religions and secular humanists endorse.
    But this entry illustrates the truth of Adam Smith’s observation (Theory of Moral Sentiments), Section III, in which Chapter III is “Of the corruption of our moral sentiments, which is occassioned by this disposition to admire the rich and great, and to despise or neglect persons of poor or mean condition.” This work of Smith precedes and is predicate to his Wealth of Nations.

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