Home Bill Bolling Reform Virginia’s Taxes, But How?

Reform Virginia’s Taxes, But How?

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( – promoted by lowkell)

Former Lt. Governor Bill Bolling has taken to the GOP establishment’s paper of record to make the case for “pro-growth” tax reform. Remember, tax cuts as an economic agenda is never about making life easier for the rich and affluent in Virginia. It’s never about boosting profits for businesses. It is in no way a selfish, cynical policy proposal. It’s a serious idea (TM) to promote growth, because we cannot talk about other ways of encouraging growth (investing in education, expanding middle class incomes, or anything else that acknowledges government’s role in sustaining economic growth).

Virginia’s current tax code is full of exemptions, exceptions and credits that lower state revenue by billions of dollars every year. In 2011, the General Assembly’s Joint Legislative Audit and Review Commission (JLARC) estimated that current loopholes in Virginia’s tax code reduced state revenues by $12.5 billion.

The question then becomes, what do we do with this additional money?

Some of it could be used to help support existing programs that are under extreme budget pressure, such as K-12 and higher education, but the primary focus should be on providing tax relief in areas that would help support economic development and enable working families to keep more of their hard-earned money.

Don’t reform taxes to invest in government services. Reform taxes so we can cut taxes elsewhere. The list that Bolling provides mentions almost every tax in Virginia, from the corporate income tax to the BPOL tax to the individual income tax. It’s far from a specific policy proposal, ironic given that Bolling also talks about how challenging tax reform can be because politicians aren’t courageous enough to work for ideas that can create winners and losers.

Last year the Thomas Jefferson Institute for Public Policy put out an idea to increase the state sales tax by expanding the goods and services covered, while cutting local taxes that Virginia’s business community has long complained about. Expanding the sales tax to cover services is not necessarily a Democratic or Republican idea, DC recently adopted this as part of the so-called “yoga tax.”  

Expanding the sales tax base not only could offset the elimination of various local business taxes, even when excluding health care services from the sales tax there’s additional revenue left over that can be used to cut other taxes. I prefer a bottom-up approach to tax cuts, focusing first on expanding deductions, making Virginia’s earned income credit refundable, and eliminating lower income tax brackets. But raising state taxes in order to eliminate local taxes should remind Virginians of the Jim Gilmore car tax elimination, which ended up being fatally flawed. The Commonwealth Institute points this out:

The “Personal Property Tax Relief Act” of 1998 sought to eliminate the locally imposed car tax, but the cost of reimbursing the local car tax was such a drain on state revenues that the General Assembly was never able to give 100 percent reimbursement and had to cap it at just 70 percent in 2002. Then, beginning in 2006, reimbursements were frozen at $950 million and distributed based on each locality’s 2005 reimbursement.

If the Commonwealth were to fall short on reimbursing localities for the local business taxes, it would lead to higher property taxes at the local level. Or an even greater squeeze in local spending, including education.

Not all localities have local business taxes like the BPOL tax, the counties that do are more in the Eastern portion of the state.  The Virginia Republican Party may find a difficult balancing act in advocating for state reimbursement to these Eastern counties given that it will do little for rural Southwest and Southside Virginia where they have become so strong. BPOL is a suburban tax, especially within the metropolitan Richmond area. Ironically, the fact that the BPOL tax is so common in the urban crescent makes it a more appealing issue for Democrats if they want to court local businesses.

  • See the Commonwealth Institute’s report on this subject for more. Also note, the Commonwealth Institute defines tax expenditures as “a revenue loss that results from special provisions in the state’s tax code.”  Then, reinstate the estate tax, the elimination of which costs Virginia $140 million a year, solely to benefit a few super-rich families, while hurting everyone else. Obviously, stop wasting money subsidizing dying, harmful industries like coal. Institute a revenue-neutral carbon tax. Etc, etc. The problem: Republicans are not likely to go for any of this…because that’s just how they are.  

  • TBill

    We basically have a 30% car tax which is unworkable. I do feel it hurts the economy – lowers car sales especially advanced hybrids and greener cars are really hit hard.  The typical NoVA 5% per annum car tax adds up to 25% over the life of a vehicle that holds blue book value well; now add to that 4% state sales tax and we are near 30% car tax. Then the state steps in to reimburse about half of this on average to the localities via tax relief.  We could potentially fix the system and increase revenue at the same time (Georgia did something like this).          

  • scott_r

    Just close some loopholes and shore up the budget: re-build the rainy day fund and re-pay the “loan” taken from the VRS.  Restore some of the former higher-ed funding to our state colleges.  Then we can talk about “broadening” and reducing rates.

    VA is already, at least nominally, a Libertarian “flat-earther (taxer)” dream: although we have nominally progressive rates, people hit the top bracket practically still below the Federal poverty level.  This means everybody pays effectively a flat tax, though with huge advantages for federal itemizers.