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March 16, 2017

You Can’t Cut Your Way to Prosperity

Virginia’s tax system is upside down. Regular Virginians pay a higher share of their income in state and local taxes than the wealthy and powerful. An array of recently proposed schemes to give new handouts to the wealthy and powerful would make it even more unfair. Virginians can’t afford that.  As part of our work to educate and inform the conversations and debates in Virginia around sound fiscal policy issues, we took a look at some of these ideas to see how they would impact Virginians at different income levels and the state budget when it comes to having the resources needed to invest in core public services.

Recent Virginia income tax proposals include HB2226, which would have cut the top income tax bracket by 0.75 percent; SB788, which would have cut all individual income tax rates by 1.0 percent; the Gillespie campaign’s proposal to cut each income tax bracket by 10 percent (a cut of 0.2 percent to the lowest bracket and 0.6 percent to the top bracket); the Stewart campaign’s forthcoming proposal; and former candidate Riggleman’s campaign proposal to create a flat 3 percent individual income tax.

Unfortunately, for those plans where details are available, much of the benefit would go to wealthy households, while working families would get far less and critical public services would be put at risk. For example, HB2226 would have given the top 1 percent a handout of over $3,800 while offering just $175 to a family of four with an income of $50,000 and no benefit to a full-time minimum wage worker. SB778 would have given the top 1 percent $5,400, while giving a middle-income family $483 and a minimum wage worker supporting two children $123. The Gillespie campaign’s proposal would give the top 1 percent almost $3,200 a year, while a family of four with an income of $50,000 would get just $246 and a minimum wage worker with two kids just $42. The Riggleman campaign’s proposal would give the top 1 percent about $14,500 a year, while actually raising taxes on a full-time minimum wage worker supporting a family of four. By providing large handouts for those at the top and little benefit for regular working families, these sorts of income tax proposals would make Virginia’s state and local tax system even more upside down.

These proposals also mean forgoing revenue that is needed to create great schools, roads, and other vital public services. For example, one of the proposals would cost $1.3 billion in the first year it is fully implemented. Let’s look at what that $1.3 billion could support. The state could put over 5,000 elementary and secondary teachers in the classroom, double Virginia’s investment in its preschool program paying the full cost of early education for an additional 17,400 students, and bring teacher pay up to the national average.

Recent experiences in North Carolina and Kansas shows that

these income tax proposals harm a state’s economy

by preventing investment in great schools and everything else that builds a strong foundation. Between 2006 and 2012, Kansas’s economy grew faster than the U.S. most years. Then the legislature and governor cut Kansas’s income tax rates starting in 2013, creating a huge budget deficit. Instead of growing the state’s economy, Kansas’s GDP dropped by 1.1 percent while the national economy grew 1.3 percent. The next year, Kansas lagged the nation again. And in North Carolina, after policymakers cut income taxes, personal income growth lagged all their neighboring states. You can’t cut your way to prosperity.

The Commonwealth Institute is a 501©3 nonprofit organization and does not endorse candidates.

Budget & Revenue

Levi Goren

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