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May 22, 2017

A Guide to Recent Tax Proposals

As part of our work to inform ongoing debates in Virginia around fiscal policy issues, we took a look at some recent tax proposals at the center of current debates – from candidates for Governor and from the most recent General Assembly session.

Gubernatorial Campaigns

The Gillespie campaign has proposed to cut each tax bracket by 10 percent (a cut of 0.2 percentage points to the lowest bracket and 0.6 percentage points to the top bracket). His plan proposes phasing in the tax cuts if certain “revenue triggers” are met. The campaign proposal also calls for sunsetting the Business and Professional Occupancy License (BPOL) Tax, the Machinery & Tools Tax, and the Merchants’ Capital Tax.

Impact:  The campaign estimates that, altogether, this plan would lower revenue by $1.3 billion over five years.

The Northam campaign has proposed phasing out the state sales tax on groceries for low-income Virginians and creating a commission to study comprehensive tax reform. Groceries are currently taxed at a rate of 2.5 percent, a lower rate than other goods.

Impact:  The campaign does not offer an estimate of the revenue impact of these proposals. During the 2016 legislative session, HB216, a proposal to phase out the state and local sales tax on food over a five-year period, was estimated to lower total revenues by $1.6 billion over five years.

The Perriello campaign proposes increasing income tax rates by 1 percentage point for filers making more than $500,000 and 1.5 percentage points for those making more than $1,000,000. His campaign also proposes making the state earned income tax credit refundable as well as establishing a new refundable child care tax credit of $500. In addition, the proposal would make certain feminine hygiene products, tampons and sanitary napkins exempt from sales tax. The proposal also calls for changing the corporate income tax to require “combined reporting” for the subsidiaries of multi-state corporations and creating a minimum tax floor for large corporations.

Impact:  A campaign spokesperson says these proposals are estimated to generate $1 billion in additional state revenues each year.

The Stewart campaign proposes to eliminate the state income tax in the first year of his administration for households in Lee, Scott, and Washington Counties and the City of Bristol and phase out the state income tax altogether for all Virginia taxpayers over the next several years. The Stewart campaign proposes establishing a single tax rate of 4.75 percent for all filers with incomes above $17,000 until the income tax is phased out.

Impact:  The campaign does not offer an estimate of the revenue impact of these proposals.

The Wagner campaign has proposed increasing gasoline taxes to fund transportation improvements. The proposal would increase gas taxes when fuel prices are low and decrease gas taxes when fuel prices are high.

Impact:  Although the campaign does not offer an estimate of the revenue impact of these proposals, during the 2016 legislative session, Senator Wagner introduced SB742, which proposed a similar structure and would have raised an additional $770.8 million over five years from the Hampton Roads and Northern Virginia regional gas taxes.

General Assembly

During this past legislative session, a number of tax cut proposals were introduced. Del. Ben Cline introduced HB2226, which would have cut the top income tax bracket by 0.75 percentage points. The new top tax bracket would be 5 percent on income above $5,000. This change would have gone into effect beginning in 2018 and would have lowered state revenue by $8.2 billion over five years. The bill was referred to the House Committee on Finance but never made it out of subcommittee.

Also during the last legislative session, Senator Glen Sturtevant introduced SB788, which would have cut each tax bracket by 0.25 percentage points each of the next four years beginning in 2018, and would have lowered state revenue by $9.7 billion over five years. That bill was referred to the Senate Finance Committee and tabled.

Budget & Revenue

Chris Wodicka

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