Losing Our Edge

Virginia is stuck in neutral.

Median household income in Virginia remained virtually unchanged in 2013, according to new data released today by the Census Bureau, while the median household income in the country as a whole rose slightly. And the share of Virginians who are living in poverty remained at 11.7 percent, well above pre-recession levels. Child poverty also remains stuck at high levels in Virginia, while it’s starting to fall from recessionary highs in the country as a whole.

There are some good economic signs in Virginia. The number of very high-income households and families – those earning over $200,000 – rose in 2013,  after adjusting for inflation, and now account for over one in 10 Virginia families. Virginia also continues to be a very attractive place for highly educated professionals to live and work, offering many high-paying opportunities for those with the right skills, experience, and connections. We remain among the top 10 states in terms of median household income and among the 10 with the lowest poverty rates.

But even positive trends like a growing number of high-income families create challenges. Lawmakers must ensure that the state has the resources and political will to  continue improving the high-quality schools, infrastructure, and environment that draw these highly educated professionals to Virginia from the rest of the country. At the same time, they can’t ignore other Virginians who need access to  education and other resources to thrive in today’s economy.

We need ladders of opportunity for today’s workers, a high-quality education for tomorrow’s workers, and thriving communities to keep and attract the most highly educated and highly compensated families. Maintaining those things takes money and investment.

But as a recent report by Standard & Poor’s points out, maintaining adequate state revenue can be a challenge in an era when income is increasingly concentrated in the hands of very well-off households. High-income households generally pay a lower share of their income toward state and local taxes than do lower-income households. So if a greater share of a state’s income is going to the highest-income households, that means less revenue to maintain the infrastructure we all rely upon.

One way to break this trend is through the state income tax, which does a better job than other state and local taxes of keeping up when a larger share of income is concentrated in the hands of fewer Virginians, and is also generally a fairer source of revenue because, unlike other state and local taxes, people who have the ability to pay more pay a higher rate. In Virginia, however, the top income tax bracket kicks in at just $17,000, which means most Virginians, regardless of their income, pay the same marginal rate. Adopting a new top income tax bracket could help make the overall state and local tax system fairer while also helping Virginia maintain state revenue during these challenging times.

With sufficient political will, Virginian lawmakers may be able to adjust Virginia’s income tax system to help the state maintain adequate revenue to invest in our future without further burdening those households already struggling to keep up.

–Laura Goren, Policy Analyst