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April 30, 2015

Livin’ on a Prayer

On the day before state taxes are due, it’s worth taking a look at
how Virginia’s outdated revenue system hits low-income people harder than the
wealthy and fails to maintain our top-notch schools and other services
essential to a growing economy.

Virginia’s upside-down tax system requires the
lowest-income workers to pay 8.9 percent of their incomes in taxes while the
richest 1 percent only pay 5.1 percent. A big reason for this disparity is that
middle class folks like the server at a local restaurant – in fact, anyone
with income over $17,000 a year – pays the same marginal income tax rate as
the millionaire ordering the special.

And everyone – regardless of how much they make
– has to pay the same tax rate for everyday essentials like food and gasoline.
But the same rules don’t apply to gold and platinum bullion, yachts, services
like gym memberships, or stuff bought online, which are taxed differently, if
at all, and are bought more often by the financially well off.

If that weren’t enough, low-income workers are
forced to leave money on the table this time of year because they can’t get a
refund on the earned income tax credits they don’t use. Meanwhile, large coal
companies freely return their unused tax credits for cash, and the wealthy can
buy tax credits from land others have preserved.

And all the while, most large corporations
aren’t putting in their fair share to ensure our kids get a world-class
education and to maintain the other essential services we know build
a strong economy for us all. At last count, roughly two-thirds of corporations
didn’t pay any income tax in Virginia despite this being a time of record high
corporate profits. That’s due in large part to the teams of accountants they
deploy to exploit special tax breaks and reduce or eliminate what they owe.
While a handful of energy and telecommunications companies are subject to a
minimum tax, they represent the exception and not the rule.

All these problems and game playing have come
home to roost in our state budget, where the state has faced shortfalls year
after year.

Even after the recession was supposedly a thing
of the past, Virginia lawmakers had to deal last year with a nearly $2.4
billion gap between what was slated for our schools, roads, and communities and
how much money the state had to pay for those things. Lawmakers made cuts and
used gimmicks to get out of that budget bind, further compromising our schools
and other essential services. And now, after years of picking up more of the
cost for schools, many localities are being forced to have tough conversations
about cutting extra-curriculars and even eliminating full-day kindergarten.

Virginia’s basic income tax structure is the
same as it was in 1987, the year “Livin’ on a Prayer” by Bon Jovi was a
Billboard hit single. That song may be a classic, but Virginia’s future needs
more to live on.

–Massey Whorley, Senior Policy Analyst

The Commonwealth Institute

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