Virginia Tax Policy

Stephen Haner writes about tax policy for the Thomas Jefferson Institute for Public Policy (TJIPP). The Institute self-describes it’s mission as providing:

“…Virginia’s political, business, academic, community and media leadership with thoughtful, realistic, useful and non-partisan analysis of public policy issues confronting our Commonwealth.

These alternative policy ideas focus on state and local issues and are based on the Institute’s belief in free markets, limited government and individual responsibility. The general areas of interest for this Institute are reforming government, economic development, improving health.”

This is a conservative journal, and I don’t often agree with the policy proposals I read about there. But Haner has this one right:

“Virginia needs to substantially increase the standard deduction it offers to all taxpayers, with the goal of matching the amount offered on their federal taxes. That would be an increase from $9,000 tax free income for a couple filing jointly to $25,100 for that same couple, removing more than $16,000 from taxable income. An individual’s standard deduction is $12,550.

Virginia needs to index its tax code to inflation, again mirroring federal practice. Failure to do so, and allowing tax rates to increase due to inflation, is itself a form of tax increase. This is even more important now because the massive federal deficit spending on individual cash benefits, and other federal actions to overheat the economy, are likely to produce the kind of inflation many of us remember from the 1970s.”

I agree that Virginia should stop taxing the labor wages of it poorest citizens. Taxing minimum wage income creates a disincentive to work. Any employers out there have employees quit after their first paycheck when they realized that a week working for $10 an hour netted them $236 instead of $400?

Raising the standard deduction to $25K doesn’t mean much to Michael Bills, but it helps all those single mothers trying to feed the kids and pay the rent by working at Wal-mart and driving for Uber. Indexing this deduction to inflation helps the same people. Of course, the full TJIPP tax reform plan for the Commonwealth includes decreasing corporate tax rates (which makes sense if the plan also closed loopholes).

So I wonder if Haner and TJIPP would support a couple more changes. I’ll buy into this tax cuts for low earners and corporations if they also further support cutting taxes on the poorest Virginians by eliminating sales taxes on food, adding another tax bracket, and increasing Virginia’s capital gains tax to 6%. After all, cutting taxes on the poorest Virginians is a great idea. I’m less enthusiastic about cutting corporate rates, but most don’t pay full freight anyway.

But doing both will cost the Commonwealth revenue we need for schools, infrastructure, and public safety. So let’s add another bracket for higher earners (over $100K with a 7% rate). Revenue generated this way might let us cut the lower bracket rates from 5.75% to 4%, by the way.

We should also increase the capital gains tax to 6.5% – only a $7K increase on a million dollar profit – not enough to keep people from investing. And eliminate sales taxes on food, hygiene items, and medications of all kinds. We should level sales taxes only on discretionary purchases, not those survival requires.

Virginia overtaxes its poorest citizens and lets its wealthiest off the hook. Those who do the best here prosper because Virginia has effective education institutions, governance, public safety, and infrastructure (well…except maybe for the I-95 corridor). It’s time for our most prosperous neighbors to invest in the Commonwealth that made them wealthy.

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