Category Archives: Taxes

Making School Vouchers Palatable to Democrats

School vouchers have brought about demonstrable improvements to students' educational achievement -- in some cases, but not all. How can we combined free choice with accountability?

School vouchers have brought about demonstrable improvements to students’ educational achievement — at some schools, but not all. How can we combined free choice with accountability?

The Richmond-based Commonwealth Institute (CI) has staked out a reasonable position on two school choice bills before the General Assembly this session. Rather than opposing school vouchers and health savings accounts out of hand, CI acknowledges that children, especially poor children, can benefit from alternatives to public school. But the center-left think tank insists upon holding private schools accepting taxpayer dollars as accountable as public schools.

Not all private schools are created equal. Some excel, far surpassing public schools in performance, while others can be described only as failures. “If the goal of school choice is to provide options for a high-quality education,” writes Chris Duncombe in CI’s Half Sheet blog, “then it makes sense to hold private schools receiving taxpayer dollars to the same standards as public schools.”

Two bills before the General Assembly — HB 1605 and SB 1243 — would create voucher-like educational savings accounts that would provide taxpayer dollars for families pursuing private education or home schooling. One way to hold hold private schools accountable to taxpayers is to adopt a policy practiced in some other states: If a private school falls short of accreditation standards, bar them from accepting vouchers the following year.

As a practical matter, if I understand the system correctly, that means private schools with voucher students will have to administer the Standards of Learning (SOL) exams. For a school to receive accreditation, a specified percentage of its students must rate proficient in the exams. That might well mean “teaching to the test,” which some private schools find objectionable. But unless someone suggests another means to hold schools accountable and weed out the inevitable fly-by-nights, meeting state accreditation standards may be the least bad option.

For Duncombe, a second issue is equity. The school vouchers would vary widely from locality to locality, dependent upon state Standards of Quality funds appropriated. “That means a family in Lee County would receive over three times as much as a family in Falls Church,” he says. “This variation is not based on the financial need of the family or the cost of pursuing private education in the area.”

(I’m not sure I see the objection here. A family in Lee County is already receiving three times as much state aid as a family in Falls Church. So, how would funding school vouchers on the same basis be any more inequitable?)

Duncombe’s third criterion is income eligibility: “A millionaire could get tax dollars to send their kid to private school, while a family who lacks the means to supplement the voucher with their own income would be left out.” His proposed solution would be to limit the benefit to households whose incomes are below 133% of free-and-reduced-price lunch eligibility — about $60,000 for a family of four.

These proposals are not unreasonable. Duncombe is not taking a position of “Vouchers, hell, over my dead body.” He’s trying to address the criticisms of school vouchers in a substantive way — in effect, taking away the arguments who those who are inclined to accept school choice over their dead bodies. If these compromises are what’s necessary to win legislative approval, expand the sphere of choice, and empower parents, then I can live with them. With luck, the General Assembly and Governor Terry McAuliffe will decide they can live with them, too.

Tax Preference or Tax Prejudice?

The Whitman exhibition of collector coins in Baltimore

Exhibit One: The Whitman exhibition of collector coins in Baltimore

by Steve Haner

Three times per year a massive coin show is held in Baltimore, packing a large convention space for several days and filling hotel rooms and restaurants all around the area. The photo above is from 2015. The dealers and the buyers include the key Virginia players in this industry.  A 2013 analysis by the Baltimore Tourism Bureau estimated that attendees spend $3 million inside and outside the arena at just one show, and they do it three times a year.  The expo may be an even bigger show now.

A similar show is held in a faded motel on Richmond’s Boulevard, near the Diamond.  I took this photo in October.  The comparison to the Baltimore show is obvious, but there is no other show anywhere in Virginia that compares to Baltimore’s either.  Maybe, just maybe, every show conducted in Virginia combined generates the $3-4 million in local spending that goes on at one Baltimore show.  No one has bothered to do a formal impact analysis.

Exhibit Two: Richmond numismatic show

What does Baltimore have that Richmond does not? It is the other way around.  Richmond and Virginia have something Maryland got rid of – a sales and use tax on collector coins. In fact, Maryland is one of 27 states that have no sales tax on those items, and then of course five states have no sales tax at all, for a total of 32 tax-free states.  Ohio just rejoined the list of tax-free states on January 1. It dumped the exemption a few years back because of one bad-apple dealer, but the local industry visibly shrank and the exemption is now back.

The national Industry Council for Tangible Assets, representing the bullion and coin dealers, surveyed its members and compared the responses from the states which do and do not tax bullion and coins.  You can see the results summarized here: Exhibit Three. Dealers in the tax-free states have more than four times the annual revenue.  Dealers in both kinds of states do mainly shows in tax-free states.  Dealers in the tax-free states, being bigger, sell more taxable items as well and remit almost as much tax as the dealers in taxing states.

Argue all you want about how Virginia ranks overall as a good place to do business – Virginia is a lousy place to do this business. Like everything else, the Internet is taking over. A Virginia buyer on a Virginia retailer’s website will get the tax added on at check-out, and often the transaction ends right there. The buyer clicks off and goes elsewhere.

Oh, in case you haven’t figured it out yet, I’m back with another bill on this issue for a client. In 2015 the Virginia General Assembly did approve legislation to remove the tax on large purchases of gold, silver or platinum bullion. Coins were removed from that bill and remained taxable. But it is the coins that are of interest to the bulk of the dealers and collectors, and only by removing the tax on the coins will the industry be able to build up the native shows, attract one of the national shows, and grow actual retail operations in storefronts. Would you like that, Virginia? Compared to the grants and tax advantages you provide other industries, the impact of this is just pocket change.

Tax policy has always fascinated me, and this issue is a classic example of how tax policy has consequences in a free market. Some may dismiss this effort as another tax preference or even, dare I say it, a loophole. But turn that around and in light of the 32 tax-free states and the tax-free U.S. Mint supply, it seems to me that the existing situation in Virginia represents a form of tax prejudice.

Stephen D. Haner is the principal of Black Walnut Strategies.

Special Tax Districts for City Schools?

Special tax districts to build public schools?

Photo credit: WAVY TV

Chesapeake Councilwoman Debbie Ritter has a crazy idea — why not let Chesapeake create special districts that allow property owners to tax themselves to fund school improvements in their district? Virginia localities can set up special tax districts to pay for utilities, transportation improvements, and even sand dredging, why not schools?

Here is her logic, as laid out by the Virginian-Pilot:

Ritter said she is requesting the change so the city has a way to pay for schools in the currently undeveloped Dominion Boulevard area off U.S. 17. The city is set to vote this month on the Dominion Boulevard Corridor Study, which maps out future land use on about 10,000 acres around Dominion Boulevard South, from the new Veterans Bridge south to the Great Dismal Swamp National Wildlife Refuge. The tentative plan notes that new elementary and middle schools may be needed.

Ritter said she would “never consider imposing an additional tax on an already developed area of the city.”

“If you live in an area now, you will not be asked to be a part of the special taxing district,” Ritter said. What the city needs is a way to fund new infrastructure around the corridor “without imposing that on current residents and businesses.”

Interesting issue. As an abstract principle, I support the idea of letting people tax themselves for public projects they want — it beats dipping into public coffers and asking other taxpayers to share the cost. As a bonus under Ritter’s plan, the people of the Dismal Swamp area of Chesapeake might get their school built far more quickly than if they had to wait for the city to scrounge up the funds or issue city-wide bonds, which city-wide voters might reject.

But there is a potential downside. I can also envision a scenario in which affluent neighborhoods vote to tax themselves for new or renovated schools, then vote down city- or county-wide funding initiatives. Poor neighborhoods would be the losers.


Taking a Hard Look at Historic Tax Credits

tobacco_rowby James A. Bacon

A General Assembly subcommittee is giving well-deserved scrutiny to Virginia’s tax credits for rehabilitating historic properties.

That program, which has provided more than $1 billion in tax credits since its inception in 1997, is widely credited with revitalizing older neighborhoods across Virginia, particularly in the City of Richmond with its wealth of historic properties. However, as the state grapples with a $1.5 billion revenue gap in the current two-year budget, it is encouraging to see lawmakers employ economic thinking for a change.

“It is really hard for us to make a good business decision here when we don’t know what kind of return we are getting on our money,” said Del. Jimmie Massie, R-Henrico, according to the Richmond Times-Dispatch. “If we are getting a 10 to 15 percent return, that is one thing. If we are getting 5 percent, that’s another.”

Virginia allows developers to claim credits of 25 percent of eligible expenses on renovations of certified historic structures, explains the T-D. With a federal historic tax credit of 20 percent, developers can claim total credits of 45 percent. They can use the credits against their own tax liabilities or syndicate the credits for investors.

According to a 2014 study by the Center for Urban and Regional Analysis at Virginia Commonwealth University, 2,375 projects tapping tax credits generated almost $4 billion in economic activity in the state between 1997 and 2013. A survey of developers indicated that 85% would not have made their investment without the credits.

The Richmond regions has benefited disproportionately from the credit. About 1,185 projects generated about $2 billion in expenditures. However, the program also has defenders from other cities, such as Staunton, which has seen a downtown renaissance in recent years.

Bacon’s bottom line: No question, the tax credit has been a boon to urban-core economies. I’m a big fan of restoring and rehabilitating historic buildings. (I restored two ante-bellum houses in Church Hill.) I greatly prefer historic architectural styles to modern motifs.

But saying that developers would not have undertaken historic renovations without the tax credit is not saying that they would have done nothing. Presumably, those developers would not have stayed idle. What the VCU study could not measure is what projects they would have undertaken in the absence of the credits. Thus, while stating that every $1 in tax credits generated $4 in construction activity sounds impressive, it is a meaningless metric of net economic impact.

I see historic tax credits as analogous to conservation tax credits. A decade ago, conservation tax credits were being handed out indiscriminately, sometimes going to properties of dubious conservation value. The General Assembly cracked down, imposing a $100 million cap. Likewise, historic tax credits may have gone to development projects of dubious value. I recall hearing that developers game the system by preserving a small historic structure, or part of a structure like a wall, and incorporating it into a larger project while pocketing credits for the full amount. (Sorry, I don’t have time this morning to document such instances for this blog post.)

The tax credits represent a drain on the state treasury. It’s about time the General Assembly started asking tough questions of the program. I am particularly concerned how much “gaming” the system goes on. Tightening up the requirements might be in order. Further, lawmakers might well consider a yearly cap, as the state does with conservation easements. As much as I personally love historic renovations, preserving the integrity of the public fisc is the greater good.

Ranking States by “Bang for the Buck”

Source: WalletHub

by James A. Bacon

Most people would acknowledge that there is a trade-off between taxes on the one hand and the quality of government services on the other. It takes money to fund good schools, colleges, infrastructure, criminal justice systems and other basic services. At the risk of over-simplifying, the red state model for state-and-local governance errs to the side of lower taxes, while the blue state model errs to the side of more generously funded government services.

Then there is the body of thought that low taxes and quality government services are both desirable, and that the goal should be to generate the best services per tax dollar expended.

Now comes WalletHub, the financial services website and compulsve list compilers, with a ranking that addresses this very point. Which states deliver the most bang for buck? By WalletHub’s estimate, Virginia does a good job — 4th best in the country.

That’s reassuring. I suspect that Virginia’s high ranking reflects its “purple” state coloring of Virginia’s electorate and the strong two-party competition that prevents either party from indulging the worst instincts of its political base. (I can think of no other reason why Virginia would fare so well — it certainly can’t be our system of governance, which caters to the political class in so many ways.)

Of course, the survey ranking is only as valuable as the methodology that stands behind it. WalletHub compiled 20 metrics to gauge the quality of government services in education, health, public safety, economy and infrastructure & pollution. Then it compared each state’s Average “Government Service” Score to its “Total Taxes per Capita (Population Aged 18 & Older)” Ranking in order to provide a clear ROI hierarchy for taxpayers across the 50 states.

According to this ranking, red states have better ROIs overall with an average ranking of 23.4 versus blue states with 27.4.

Unclear, however, is how WalletHub defines a state to be “red” or “blue.” One could argue that Virginia is a blue state because the governor, Terry McAuliffe, is a Democrat. But both bodies of the General Assembly are controlled by Republicans. Similarly, Ohio is judged to be a “blue” state, even though its governor, John Kasich, is a Republican. Perhaps WalletHub should establish a “purple” state category. I would be interested to see how purple states fared by this reckoning.

We can argue over the methodology all day long. The larger, more important point, I believe, is the question that WalletHub is asking: Which states have optimized the tradeoff between taxes and services — who is getting the most bang for the buck? If we can answer that question, we can move on to even more compelling questions: Which policies, strategies and institutions account for the superior results?

Virginia Property Taxes — Not as Bad as Jersey but Worse than D.C.

No one much pretends that Virginia is a “low tax” state anymore. Indeed, the Old Dominion has ensconced itself solidly in the ranks of the middle-tax states. If there is anything good to be said about the state’s tax structure, it’s that revenue sources are diversified across a broad array of taxes — income, sales, property and many smaller sources — so that state revenues aren’t excessively vulnerable to, say, a real estate crash, a consumer recession, or a decline in capital gains-generated income tax revenue.

One downside is that Virginia taxes personal property — primarily real estate and automobiles — more heavily than the typical state. I have combined data from the latest WalletHub offering to show that, using WalletHub’s methodology, Virginia has the 14th highest property tax burden among the 50 states (and Washington, D.C.) The real estate tax rate is modest (16th lowest) but it combines with relatively high median housing prices (11th highest) to create the 23rd highest average tax on the median-value house.

The car tax (2nd highest in the country) is a killer. Throw that into the mix, and Virginia has the 14th highest overall property tax burden in the country. If you adjust the taxes as a percentage of average household income, the numbers look a little better. Still, there’s no escaping the conclusion that Virginia’s “low tax” days are long gone — even at the local level.

The main limit to this analysis is that it obscures the tremendous divide between NoVa and RoVa. NoVa is in a league of its own when it comes to housing values and property tax rates. If you split the state into two, I’d guess, NoVa probably would look more like New York and RoVa more like North Carolina.


Your Tax Breaks at Work


Terraces at Manchester

by James A. Bacon

The Terraces at Manchester, a 148-unit luxury apartment across the river from downtown Richmond, opened in August. Its amenities include views of downtown and the river, an outdoor pool, a club room, a sky lounge, a rooftop dog park and, of course, an active urban lifestyle. Its cheapest apartment, with a small bedroom, a small bathroom and a living-kitchen area, rents for $1,200 per month.

Thank to an “affordable housing” ordinance enacted in 2014, the developer was able to pocket $2 million in real estate tax breaks over 10 years by renting 15% of the units to individuals making $41,000 a year or less. The company isn’t required to offer reduced rents in exchange for the breaks.

poolNow City Council has activists’ remorse. Councilwoman Ellen F. Robertson, author of the measure, wants to close the “loophole” she designed in the first place. “Once we realized there was a loophole, we decided to revise the legislation to make it more restrictive,” she was quoted as saying by the Richmond Times-Dispatch. “It was unfortunate that we did have a developer that didn’t operate in the true spirit of the law.”

Yeah, right, it was the developer’s fault! He read the fine print. Shame on him!

“We fully complied with the ordinance,” said Robin Miller, one of the principals in the project. However, he added, after the project’s use of the tax breaks were reported last month, his staff has reduced rents for some tenants.

Isn’t that special? Tenants making up to $41,000 (more than the median household income for the City of Richmond) who voluntarily signed a lease, presumably because they found the cost-to-value proposition attractive, suddenly get a break in their rent. Well, that certainly promotes the cause of affordable housing for the city’s lower-income residents!

So, what’s Robertson’s fix? Here’s the T-D’s explanation:

Robertson … said her proposed changes tighten eligibility requirements for developers seeking to qualify. Among the changes the City Council will consider: requiring developers to charge rent proportional to a qualifying tenant’s income and lowering the maximum salary that a qualifying low-income tenant can make up to $31,200, which is 60 percent of the area’s median income.

If the program changes are adopted, the most an individual tenant could be charged is $780 monthly.

Charge rents proportional to the tenant’s income? That sounds like a winner. Imagine how tenants will game the rules on that one (with landlords doing a wink, wink, nod, nod). Say an unmarried couple wants to live in a project qualifying for the tax break. The partner with the lowest income rents the apartment in his or her name, qualifying for a rent reduction. Then the other partner moves in, too, and pays all the utilities and groceries. Trust me, this fix is ripe for abuse.

Here’s an idea: Maybe City Council should stop trying to “fix” the housing market and start acquainting themselves with the law of supply and demand. Instead of passing tax breaks and incentives, maybe it should loosen up zoning restrictions against building new housing stock. If the supply of housing increases faster than the demand, prices will fall.

But what happens, I hear the economically illiterate ask, if builders just build luxury apartments that generate the biggest profits?

Here’s what happens. People moving into the luxury apartments and condos presumably lived somewhere else. They put their properties on the market (or free up apartments for someone else to rent). Someone else moves in, and they create vacancies where they formerly lived. Ultimately, vacancies open up in the lower end of the housing market, creating options that poor people didn’t have before. Here’s the really astounding thing — it doesn’t take any tax dollars, and it doesn’t herd poor people into crime-ridden projects.

Unfortunately, a fostering a free market in housing doesn’t help the politicians. After all, any politician worth his or her salt gets re-elected by “doing something” that proves they “care” (regardless of whether what they do actually works). Even scarier for politicians, their low-income constituents might move out of their district — maybe out of the city entirely — to be replaced by affluent constituents living in luxury apartment who, gadzooks, might vote for someone else!

Sadly, in the war between economic logic and political logic, political logic usually prevails. As the T-D article concludes, Robertson’s proposal is on Council’s consent agenda, an indication that it is considered “likely to receive unanimous approval.”

Is Virginia Ready for Car Tax Reform?

Toyota Prius. Want greener cars? Try reforming the car tax.

Toyota Prius. Want greener cars? Try reforming the car tax.

by Bill Tracy

I was encouraged last week when Sen. Chap Petersen, D-Fairfax, joined the “car tax blues” chorus.* According to the Washington Post, Petersen filed bills proposing  to eliminate the car tax through a constitutional amendment and then giving localities the option of levying a local gasoline tax to make up for the lost revenue.

Many localities given the freedom to tax cars to balance their budgets went over-board with a car “super-tax.” That’s what’s happened in Northern Virginia, where the cumulative tax levy can approach 30% of a vehicle’s original cost over the 12-year average life of a vehicle. Of course, thanks to former Governor Jim Gilmore, the state of Virginia pays much of the local car tax for most residents. Unfortunately, the effect of the state subsidy has diminished as the cost of new cars escalates faster than the capped state payments.

Can you imagine up to $12,000 cumulative car taxes** on a $40,000 Ford F-150, America’s most popular vehicle? Even after Gilmore’s tax relief, the total tax bill still could be as high as $10,000 in NoVa. This compares unfavorably to our neighbors in Maryland and D.C. with a flat 6% excise tax ($2,400).

Parenthetically, Virginia’s car tax relief program does NOT reduce or solve the local car tax issue. It simply means that the state of Virginia, as a stop-gap corrective measure, sends a check to the locality on your behalf to help you cover your car tax bill.

Due to high local car taxes, many Virginians have learned to be modest in their new car selections, or they purchase used cars instead.  As a consequence, we are throttling new car sales.  In addition, the tax functions as a de facto green car penalty. For example, a hybrid typically costs about $4,000 more than an equivalent  non-hybrid. That price premium gets fully taxed.

Auto manufacturers believe that the Obama administration’s 54 miles-per-gallon standards for 2025 will force them to sell more electric plug-in cars to meet their regulatory quotas. California, the largest and most important U.S. car market, already mandates a substantial portion of electric car sales. Former GM executive Bob Lutz speculated that automaker were trying to recoup the cost of unprofitable plug-in sales by jacking up prices on other cars, especially trucks, SUVs and crossovers. Whatever the cause, we are seeing a trend towards more expensive conventional vehicles and more expensive green cars. As the average cost of a new car trends to $34,000 and higher, our current car tax system will prove increasingly painful to Virginia residents.

A year or so back, the McAuliffe administration invited me to submit my proposal for reforming the car tax to Transportation Secretary Aubrey Layne. The secretary nixed it on the logic that the localities, not the state, have ownership of the car tax issue.

To summarize my proposal, I said there is nothing wrong with a modest local car tax. At last count, about 18  states have some form of a local car tax.  I have studied the car tax formulas of many other states, and I strongly feel that we could devise an improved formula for Virginia.

As a fiscal “conservative” fearing another temporary, stop-gap solution, I am reluctant to totally kill off our car tax. As a possible alternative, perhaps we could move to a life-time 6% upper limit on the (tax deductible) local car tax in addition to the normal 4% Virginia state tax, for a total 10% total car tax. Perhaps give the buyer the option to pay a lump sum on the local tax.  I believe the lump sum approach is how Georgia weaned its localities from a prior “super-tax” approach.

I also agree with Petersen, and a related proposal by Sen. Frank Wagner, R-Virginia Beach, that allowing localities to charge more for local gasoline taxes at the pump might be a good idea. But, holy cow, let’s not give localities carte blanche on that.

Am I too bold to suggest that reducing the car tax would stimulate enough new car sales that localities might come out ahead? Only if we play our cards right, with good planning.

Bill Tracy is a retired engineer living in Burke, Virginia.  He owns a 2006 Prius and a 2009 Minivan (both white).

* The Virginia Car Tax Blues

(Parody song by Bill Tracy, 2013, to the tune White Christmas.)

 I’m dreamin’ of a white Prius, with every car tax check I write,
Where the hybrids pay more, and big cars pay less, 
To use, Virginia’s bumpy roads.

I’m dreamin’ of a new Prius, but I don’t think it makes sense here.
Low de-pre-ci-a-tion, high val-u-a-tion,
You pay, more car tax every year.

Now thinkin’ of a used Chevy, just like the ones Gramp used to drive.
If you think that’s crazy, you’re right!
But may all your Priuses…be White. 

** Calculations for 5% annual car tax, with and without 30% tax relief below $20,000 value, for a $40,000 vehicle at a low 15% depreciation rate. Cumulative total tax for 12-year ownership. Includes 4.15% state sales tax on cars.  Assumes no further local car tax rate increases.

Tracking Virginia’s Quality of Life

Source: 2015 State of the Commonwealth Report

Source: 2015 State of the Commonwealth Report, (Click for larger image)

by James A. Bacon

Virginia’s economy, dependent upon federal spending, has under-performed the national economy since 2010, and will continue to do so in 2016, according to the Virginia Chamber of Commerce’s 2015 State of the Commonwealth Report. But lead author James V. Koch, president emeritus of Old Dominion University, does find a silver lining:

Once we adjust for differences in the cost of living, the spendable “real” income of most Virginians exceeds that earned by typical residents of the cities along the East Coast to whom we are frequently compared. Our dollars go further and our money has more purchasing power than that of our competitors. The moral to the story: If you’re concerned about your standard of living, there’s hardly any better place to live than Virginia.

Gini coefficient for selected Virginia localities. Source: 2015 State of the Commonwealth report

Gini coefficient for selected Virginia localities. Source: 2015 State of the Commonwealth report

The most common yardstick for standard of living is median household income, in which 50% of households earn more and 50% earn less. But that indicator misses a lot. As Koch points out, it does not take into account the cost of living. Thus, median household incomes in New York City are high — but so is the cost of living, canceling the advantage of higher incomes. As Koch also notes, median household income doesn’t tell us how equally those incomes are distributed. If incomes are hogged by the so-called top “1%,” that’s not much comfort to the other 99% of the population.

The Virginia Chamber and the Strome College of Business at ODU present the report with the idea that “thoughtful discussion of the challenges confronting Virginia can make it even a better place to live.” So, kudos to Koch for contributing to a deeper understanding of how to measure a community’s quality of life.

But the State of the Commonwealth report is only a first step. I would argue that further adjustments to quality-of-life metrics are needed to create a meaningful basis for comparing communities.

  1. Adjust for taxes. We should be looking at disposable income — income after taxes. Higher incomes push households into higher federal income tax brackets. Also, some states and localities soak up a much larger share of personal income than others. Virginia state/local government imposes a moderate-low level of taxation as a percentage of income upon its residents, making more disposable income available. This data is readily available and should be relatively easy to calculate.
  2. Adjust for transportation. Some regions have more efficient land use patterns than other, allowing for more varied transportation options, such as walking, biking and mass transit. As a consequence people in some communities spend a much larger percentage of their income on the cost of owning and operating automobiles without adding to their quality of life. Sprawling development in Virginia detracts from the standard of living. The H&T Index (housing & transportation) attempts to measure this effect. Perhaps there is a way to incorporate it into a more comprehensive quality-of-life measure.
  3. Adjust for time. People assign a monetary value to the time they spend commuting, which is time they could be doing something more productive or enjoyable. Localities vary widely in the amount of time residents burn moving from location to location. The Census Bureau captures this metric and a value assigned to peoples’ time.
  4. Adjust for education. Although government pays for most K-12 education in the United States by means of the public school system, Americans attach a monetary value to the quality of education, as seen by the vast sums they expend on private schools or the premiums they pay to live in better better school districts. Thus, the high quality of schools in, say, Northern Virginia would offset to a significant degree the frustration of longer commutes and higher transportation costs.

The conversation could be expanded even beyond those measures to include quality-of-life metrics relating to arts, entertainment and culture; the affordability and accessibility of higher education; and the comprehensiveness of the social safety net.

As we think about how to build more prosperous, livable and sustainable communities, it is important to expand the conversation beyond maximizing income, as desirable as that is, to moderating taxes, creating more efficient human settlement patterns, and improving the quality of education, with all the complex trade-offs those objectives entail.

When’s the Last Time a Virginia Governor Proposed a Business Tax Cut?

mcauliffeGovernor Terry McAuliffe announced yesterday a package of tax cut and credit proposals to improve Virginia’s business climate and stimulate economic growth.

A proposed reduction in the corporate income tax rate from 6% to 5.75% would generate nearly $64 million in tax relief for Virginia businesses over two years, while other proposals would create incentives for research and development and early-stage financing, including:

  •  Creation of a new R&D Tax Credit with a $15 million cap to benefit companies spending more than $5 million annual in research spending.
  • Increasing the statewide cap for an existing R&D Tax Credit by $1 million to $7 million.
  • Increasing the cap on Virginia’s Angel Investor Tax Credit by $4 million to $9 million.

The proposals come at a time when Virginia’s ranking in national business climate surveys has fallen steadily from a once-lofty perch. In a press release, McAuliffe specifically cited competitive pressure from North Carolina, a perennial rival in the competition for corporate investment, which has reduced its corporate tax rate from 6.9% to 5% in the past two years. The rate is scheduled to drop to 4% next year.

Bacon’s bottom line: While these tax cuts may be regarded as incremental and “small ball” in scale, they are cuts. Virginia has seen little but tax hikes over the past decade. Add up these initiatives, and they amount to $84 million. When’s the last time Virginia cut business taxes by $84 million? I can’t even remember. Good for McAuliffe.

One more point: The governor, who loves to wheel and deal, could have proposed an increase to the Governor’s Opportunity Fund, used to sweeten corporate investment deals, but he didn’t. As his press release notes, “The broad-based tax proposal will provide significant benefits for all corporations rather than selecting winners and losers.” Once again, good for him.

Update: Michael Cassidy with the Commonwealth Institute reminds me that there have been several business tax cuts/credits over the past 10 years: elimination of the estate tax ($140 million annually), cutting estate tax for multi-state manufacturing companies ($59 million annually), sales tax exemption for data centers ($7 million annually), and film tax credit expansion ($6.5 million annually).