Category Archives: Taxes

Subsidies for Thee, but Not for Me

Jamestown Settlement — tax thyself!

The economy of the Historic Triangle — Williamsburg, Yorktown and Jamestown — depends heavily upon heritage tourism. Visitor spending reached $1.08 billionand employed 11,000 workers in 2012, according to one report. But last year tourism and hospitality officials were complaining that growth had stagnated.

So, what do you do to boost the region’s No. 1 industry?

Raise taxes, of course. This year the General Assembly passed a bill backed by Senate Majority Leader Tommy Norment, R-James City County, to impose a 1 percentage point surcharge on the sales tax to raise revenue to be split equally between a new effort to rekindle Historical Triangle tourism and the three Triangle localities of Williamsburg, James City County and York County, reports the Daily Press. Williamsburg would use the funds to roll back the admissions tax and hotel and meals taxes it approved last year.

Sen. Monty Mason, D-Williamsburg, had opposed the tax all along on the grounds that it impacted poor people the most. After the bill sat on the desk of Governor Ralph Northam for three weeks, he prevailed upon Norment to amend the tax. The revised version would exempt the sales tax on food and add a $2-a-night hotel surcharge to recoup the lost revenue.

“I think this could be transformational,” Norment said.

Bacon’s bottom line: I don’t normally agree with Democratic Party politicians, but Mason is absolutely right about this. It’s one thing to tax hotels and restaurants, as Virginia Beach does, to raise funds to pour into marketing, promotion and infrastructure building. Although local residents do pay more for eating out, the tax is largely paid by the industry itself. But levying a sales tax on the general populace to benefit the industry is quite another thing. Such a tax would indeed impact the poor, who spend a disproportionate share of their incomes on food — not eating at restaurants but food purchased at grocery stores.

The workforce of Williamsburg, York and James City is about 70,000. In other words, five out of six people do not work in the hospitality industry. Undoubtedly some businesses provide goods and services to the sector, thus benefiting indirectly from its presence, but major employers like the College of William & Mary and the Anheuser-Busch brewery do not. The tax would represent a massive subsidy for the tourism sector at the expense of everyone else.

Don’t get me wrong — I personally love heritage tourism. I love visiting Colonial Williamsburg. But is that really the future that Triangle localities want to build for themselves? William & Mary, one of the highest regarded public universities in the country is located there. The Kingsmill Resort, which caters to affluent retirees, is located there. NASA Langley and Thomas Jefferson National Accelerator are located a few miles down Interstate 64. For $25 million a year, the community can’t come up with any better economic development initiative than promoting tourism?

As the dominant industry, the tourism sector is converting its political clout into public subsidies in order to perpetuate, even increase, its dominance. While a 1% sales tax surcharge might not seem like a lot, it will have a small dampening effect on economic activity not related to tourism. For example, the surcharge could encourage affluent retirees to select somewhere else to settle down and spend their money, thus impacting Kingsmill Resort-like development in the future and driving away citizens who pay lots in taxes but demand little in the way of government services.

I’m all in favor of not damaging your existing industry by refraining from enacting burdensome regulations and taxes. But if you want to nudge your community into the innovation-driven Knowledge Economy, you don’t do it by taxing the new economy to subsidize the old economy.

Here’s an Idea, Let Maryland Have Amazon

Virginia’s friend: Maryland Governor Larry Hogan

Maryland legislators approved Wednesday an $8.5 billion incentive package to lure Amazon’s second headquarters to Montgomery County. Governor Larry Hogan (R), who proposed the plan, is expected to sign the bill.

I love it! This is the best of all worlds for Virginia. Amazon has estimated that the headquarters will invest $5 billion and employ 50,000. If Amazon puts its second headquarters just across the Potomac River in Montgomery County, Md., Northern Virginia will benefit from many of the positive spillover effects without undermining its tax base to bribe the company into locating there.

Nonpartisan analysts with Maryland’s General Assembly said the incentives would cost the state $5.6 billion in tax breaks, $2 billion in transportation spending, and $924 million in local tax credits, for a total of $8.5 billion. While a solid majority of Maryland legislators backed the package, a sizable minority objected to the massive subsidies, reports the Washington Post.

“Amazon is getting the gold mine and we’re getting the shaft,” said Del. Herbert H. McMillan, R-Anne Arundel. He described the package as “corporate welfare.”

(Virginia has offered an incentive package as well, although nothing that has required approval by our General Assembly. The details remain confidential, despite efforts by anti-Amazon groups to obtain them through Freedom of Information Act requests.)

Let’s game this out. Let’s assume that Maryland’s bribery package is so generous that it outweighs anything Virginia can cobble together under existing legislation and appropriations. Let’s assume that Amazon builds an 8-million-square-foot  headquarters campus in Montgomery County, invests $5 billion, and hires 50,000 highly compensated workers, as it says it will. Where does that leave Virginia?

In the cat bird seat.

Maryland and Montgomery County hired the Sage Policy Group, Inc., to study the economic impact of an Amazon relocation to Montgomery County. The study finds that a full build-out would support more than 101,000 jobs in Maryland, generate nearly $7.7 billion in employee compensation, and boost economic activity by more than $17 billion. (Presumably these are annual figures, although the study’s Key Findings does not say so explicitly.) Writes Sage:

Complete development of Amazon’s HQ2 will create approximately $112 million in augmented tax revenue at the County level. The bulk of this will flow to Montgomery County through direct income and property tax effects, though indirect and induced activities will also augment local tax revenues as far north within Maryland as Frederick and Baltimore Counties. This tally includes nearly $64 million in property taxes and nearly $34 million in income taxes.

At the state level, tax receipts will increase by an estimated $190 million over the duration of development, including $84 million in sales tax revenues, $62 million in income tax revenue, and more than $10 million in nontax revenues (e.g., fees, and permits.)

Here’s what the Sage study overlooks: the costs associated with an added workforce of 101,000 in an era of full employment.

Unemployment for the Washington metropolitan area was 3.6% in February. That verges on a labor shortage. Indeed, for IT-related jobs, there is a labor shortage. To fill those jobs, Amazon will either (a) induce skilled employees from other metros to move to the Washington area, or (b) recruit skilled employees from local employers, who in turn will have to induce skilled employees from other metros to move to the Washington area. Those people will have to live somewhere, and they will require state and local government services.

The increased economic activity resulting from the Amazon headquarters will more than offset the drain from $8.5 billion in subsidies. But will it also offset the cost of building new infrastructure and providing state/local government services, including schools, to the tens of thousands of households moving into Maryland?

Let’s assume for purposes of illustration that a third of those 101,000 employees joining the Maryland workforce have children, and let’s assume that they have only one child at home on average, and let’s assume that only 75% of those children are of school age. That means we can expect an enrollment increase of 25,000 students in Maryland schools. The average cost per K-12 student in Maryland is about $15,000. Let’s say a 20% of that is overhead and that the variable cost per child is only $12,000. That pencils out to $300 million in added K-12 school expenditures.

Guess what. The total anticipated increase in state and local tax revenues is…. $300 million. That leaves nothing for public safety, public works, higher education, health care, social services, the environment, or the mandatory bloated bureaucratic overhead. Fiddle with the numbers in my assumptions, if you want, but understand the principle: Sage’s economic impact formula considers only tax benefits, not fiscal costs.

By contrast, Virginia will enjoy economic benefits from Amazon in Maryland without the tax giveaways.

The Sage study does not publish an estimate of the economic impact of an Amazon-in-Montgomery-County scenario on Virginia or Washington, D.C. scenario.  I suspect there’s a reason why Sage didn’t disclose those numbers — because an embarrassing proportion of the benefits of an Amazon move to Maryland will accrue to the entire metropolitan area.

“Entrepreneurship related directly or indirectly to e-commerce, cyber-security, big data analysis, and other segments would accelerate,” states the report. As it happens, cyber-security and big data analysis are industry sectors at which Virginia excels. It is inevitable that Amazon will do business with Virginia companies, and it is likely that Amazon or former Amazon employees will seed new enterprises in Virginia.

No doubt some Amazon employees will live in Virginia and drive across the Potomac. We’ll have to provide schools and other public services to them. Here’s the difference: We won’t have to eviscerate our tax base to do so.

Taxes, Data Centers, and Republican Party Politics

Corey Stewart

Data centers account for 92% of all new capital investment in Prince William County between 2012 and 2017. Now Corey Stewart, chairman of the Board of Supervisors and Republican candidate for the U.S. Senate, wants to raise taxes on them.

Stewart, who is running as a Donald Trump-style populist, proposes to use the $21 million in additional taxes to slash the county’s real estate tax rate. It’s about time, he says, that data centers pay their fair share of taxes, reports Inside Nova.

“The big data center companies in Prince William County are some of the largest, wealthiest corporations in the world,” Stewart said. “And I think people are concerned about data centers because these are big, ugly buildings that employ very few people, push up the cost of commercial land and drive the need for even more transmission lines in the county. We’re giving them a tax break, and that’s not right.”

Data centers used for cloud storage constitute one of the biggest bright spots in Virginia’s economic development efforts as the state struggles to diversify its economy from overreliance on the federal government. Loudoun and Prince William Counties have benefited from their proximity to the surfeit of high-capacity fiber-optic cable in Northern Virginia to attract billions of dollars in data-center investment. Other localities such as Virginia Beach and Henrico County have begun competing for the business by reducing tax rates on computers and peripherals. Even with the lower rates, data centers yield enough in local tax revenues that localities regard them as huge positives for the tax base.

In Prince William, the electricity-hungry data centers have become embroiled in a related issue of how to supply them with electric power. In a bitterly contested case, Dominion Energy has been trying to get approval to build a transmissions line through western Prince William County not only to serve a growing population but to deliver power to an Amazon Web Service data center in the Haymarket area.

According to Inside NoVa, Stewart argues that a higher tax won’t make existing data centers leave. The owners have already spent so much money to build the facilities and install the servers and other equipment that they would not shut them down.

Needless to say, the Northern Virginia Technology Council (NVTC) and its business allies oppose the tax, noting that raising the tariff will discourage future investment by cloud providers. Josh Levi, NVTC’s vice president for policy, says that some data centers fall into the category of “colocation centers” where the owner rents out server space to smaller businesses. If Prince William raised its tax rate, these colocation centers would have to pass on the new cost to their customers and potentially scare away some away. “It’s about dollars and cents, not emotions, for these companies,” Levi said.

Stewart responds that even with the tax increase, Prince William’s computer equipment rate still would be lower than that of Loudoun County, which has seen no diminution of interest by data centers. Cloud providers, he says, are still “pounding on their door.”

It will be interesting to see how Stewart’s tax-hike proposal plays out in the Republican senatorial nominating contest. Traditionally, Republicans could be counted on to take a pro-business, anti-tax stance. But Stewart is inveighing against a group of companies that are taking a beating in the public perception, especially among political conservatives.

Facebook has been roundly criticized from the left for being insufficiently vigilant in protecting the privacy of its users from misuse by Cambridge Analytica, an English data mining company affiliated with conservative figures and the Trump campaign. But conservatives have retorted that Facebook shared far more user data with the Obama campaign. A populist wave building within conservative media contends that Facebook, Google, Twitter and other West Coast tech giants, increasingly politically correct, are suppressing conservative voices on social media. Likewise, President Trump has singled out Amazon for allegedly not paying its fair share of sales taxes. If the revolt against the tech giants continues to build, then Stewart’s tax gambit could play very well in the Republican base.

Bacon’s bottom line: The Democratic Party and the Republican Party both represent coalitions of diverse groups and interests. Increasingly, the Democrats appear to be divided between the leftist “Bernie bro” faction and the establishment Hillary faction. Similarly, Republicans are divided between a populist Trump-loving faction and an establishment faction repelled by Trump’s careless, populist rhetoric.

Those divides are reflected in Virginia politics. Virginia Democrats faced a choice between the establishment candidate Ralph Northam and the Bernie-bro candidate, Tom Perriello in the nomination for governor last year. Having won both the nomination and the election, Northam appears to be in a position to keep the party unified… at least for now. While Republicans also selected an establishment candidate to run for governor, Ed Gillespie, he lost handily, creating a big opening for a Trump-style populist like Stewart. While I question his policy proposal to increase taxes on data centers, I suspect that Stewart’s gambit might be good politics — good enough, at least, to win the nomination.

As the dominant political parties schism, I can’t help but think there is an opportunity for a fiscally conservative, market-oriented, socially moderate and racially/ethnically inclusive party like the Libertarians. Libertarians have yet to identify a demographic constituency upon which to build a political base. But if they find just one leader who can crack that nut, politics in Virginia and the nation are ready to crystallize into a very different form.

The Tax Cuts Are Working

by Jack Hubbard

We’re barely three months into 2018 yet, and Virginia is already off to an incredible start.

The passage of the Republican tax plan in late 2017 has allowed Virginia’s more than 700,000 small businesses to breathe a sigh of financial relief.

Prior to the passage of the Tax Cuts and Jobs Act, the majority of small businesses (95%) were taxed at nearly 40% by the federal government. After state and local taxes were added in, that number often reached 50%. This astronomically high tax burden diverted valuable resources from job growth to government coffers. President Trump and Congress knew something had to be done.

Under the new tax code, small businesses whose income is less than $315,000 can now claim a 20% tax deduction, leaving more resources for investment and job creation. In Virginia, that increased deduction applies to nearly all of Virginia businesses. And these businesses now can take these tax savings, reinvest them, and expand their enterprises.

What happens when businesses expand? New hiring follows, putting more Virginians on the career ladder. And more Virginians working leads to greater investment in the Old Dominion.

Additionally, the tax plan’s lower tax rates and increased deductions have empowered businesses throughout the country to pass on tax savings and to their employees. So far, more than four million Americans have received a pay increase or bonus from their employer since the tax bill was passed. Larger companies such as Walmart, BB&T Bank, and Capital One have all increased starter wages.

Here in Virginia, the Bank of James in Lynchburg has raised starting wages to $15, added vacation days, and increased its charitable giving plans.

The list of beneficiaries of the tax bill continues to grow. Even many public utilities have announced that they will be cutting rates on their customers. Residents in nearby Washington, D.C., will see their electric rates cut after Pepco announced lower rates during the first quarter of 2018, and I can only hope that Virginia companies follow suit. These cuts are occurring only because President Trump and Congress did their jobs, and people are seeing real  money in their pockets.

Media reports notwithstanding, the Tax Cuts and Jobs Act has proven itself time and again in only one month since its passage.

While Democrats may call tax savings “crumbs,” the real-world benefits of tax cuts suggest otherwise. Job creators—and the people they serve—are more optimistic than ever. Imagine what the rest of 2018 will have to offer.

Jack Hubbard owns the The HomeMade Gin Kit in Alexandria.

Make No Mistake, Dems Oppose the Tax Cuts

John Whitbeck

by John Whitbeck

I read the guest piece from Alfredo Ortiz this week (“Comstock Supports the Tax Cuts. Do Her Democratic Foes?“) with a bit of a smile. Republicans are pleased to be the driving force behind tax cuts in America. While Mr. Ortiz might be uncertain about where Democrats in the 10th District stand, those of us who have spent any time around this far left crowd are not.

There is no better example than the Democratic forum in Winchester earlier this month. The candidates were near unanimous in their view that the Tax Cuts and Jobs Act is the single worst piece of legislation to come out of  the Federal government since the Alien and Sedition Acts.

State Sen. Jennifer Wexton, D-Leesburg, made her position absolutely clear: “I think the first thing we should do is try to roll back the tax cuts,” she said. “I am loathe to cut spending.”

Alison Friedman didn’t mince words either, saying that “Congress must address the abomination that is this tax bill.”

Lindsay Davis Stover said the tax cuts — which have already seen Virginians taking home bigger paychecks — were actually a “tax increase.”

Deep Sran went even further: “Everything that is wrong is in this one piece of legislation,” he said.

Make no mistake: if any of these people are sent to Washington, D.C., they’re an absolute lock to vote for Nancy Tax-Cuts-Are-Armageddon Pelosi to be Speaker, and a lock to vote to repeal tax relief.

Regardless of who wins the primary in the 10th District, it will be interesting to see how quickly the nominee changes his or her tune. Democrat rhetoric on taxes has run face-first into the buzz saw of reality.

People all over Virginia who were told their taxes were going up are getting bigger paychecks, and voters who were told they sky would fall are now seeing higher wages, bonuses, and better benefits. Poll after poll shows that early Democrat efforts to paint the law as a tax hike are failing miserably.

Rhetoric aside, Virginians are seeing the truth every time they get a paycheck. Checks are getting bigger, benefits are getting better. Come November, voters will remember who voted for bigger paychecks, and who will vote against them.

John Whitbeck is chairman of the Republican Party of Virginia.

Tax the Country Clubs Like You’d Tax Anyone Else

Prime real estate: the Army Navy Country Club in Arlington

As if the General Assembly didn’t have enough image problems, our august representatives are pushing legislation that would provide property tax relief for two Arlington County country clubs, reports the Associated Press. The bill has passed the House with bipartisan support and made it through the Senate Finance Committee.

The combined property bills of the Washington Golf and Country Club and the Army Navy Country Club amount to $870,000 a year — equal to the 11 next highest-taxed country clubs in Northern Virginia. The clubs have spent years in unsuccessful negotiations with Arlington County to lower the tab, so they have turned to the General Assembly.

“What we have here is a question of equity,” says Del. Tim Hugo, R-Centreville. “It comes back to basic fairness.”

But opponents of the bill say the clubs can afford it. Writes the AP:

Both clubs have long and storied histories and count many of Washington’s elite as members, including past presidents. Top staff at both clubs are paid handsomely, federal tax records show. The general manager at the Army Navy club makes about $400,000 a year, while the tennis director at Washington Golf and Country Club makes about $300,000 a year.

The Army Navy Country Club allows active-duty military officers to join for free and offers other discounts to veterans, while civilians must pay $72,000 to join the club. The Washington Golf and Country Club did not respond to a request for information about its fees, but Washingtonian magazine reported a decade ago that the fee then was $70,000. …

“The bill is a tax cut for wealthy country club owners, including those outside of Virginia, in favor of raising taxes or cutting services for the residents of Arlington,” said Del. Alfonso Lopez, a Democrat who represents Arlington.

OK, nobody feels sorry for the rich, snooty swells who belong to the club. Reverse snobbery always plays well in certain quarters. Screw ’em, they’ve got plenty of money. Let them pay more.

I don’t have much sympathy for the stick-it-to-the-rich argument. But I do have sympathy for a different argument. County board member John Vihstadt said the tax bills for the golf clubs are so high because the property values are so high. Arlington is a dense urban county right next to Washington D.C.

What is the highest and best use of the land? Golf courses for the well-to-do? Or development that provides housing, retail, and office space in the core of the Washington metropolitan area, which is suffering from a shortage of developable land? From an economic perspective, it’s not even close. The land would be worth more if converted to mixed-use development.

Property owners have rights, of course, and no one should compel the country clubs to relinquish their golf courses. No one is talking about exercising eminent domain to take over the land, but I would certainly oppose any effort to do so should anyone propose it. On the other hand, the clubs have no more right to favorable tax treatment than other property owners. The General Assembly needs to butt out and let Arlington make its own land use decisions.

Tax Credits for Virginia Coal Mining?

Underground coal mining is a capital-intensive business. Do state tax credits really make a difference?

The House of Delegates has passed a bill sponsored by Del. Terry Kilgore, R-Scott, in the House and Sen. Ben Chafin, R-Russell, that would provide state tax credits for the production of metallurgical coal.

The legislation, which would offer $200,000 in tax credits next year and about $500,000 the year after, is more modest than previous efforts, which would have cost the state some $7.3 million in coal tax credits. But former Governor Terry McAuliffe vetoed those bills, and Kilgore is hoping that the scaled-back version will pass muster with Governor Ralph Northam.

“At some point and time, you’ve got to figure out how to move forward, and this is how we move forward this year,” Kilgore said, as reported by the Roanoke TimesReinstating the credits would help protect the remaining coal jobs in Southwest Virginia’s struggling coalfields region, he added. 

Bacon’s bottom line: Coal production and coal employment have plummeted in Southwest Virginia over the past three decades, and the mountainous region has not found an industry to replace it. I’m not persuaded, however, that $200,000 or even $500,000 a year will make much difference. Virginia has been mining coal for more than a century, and the most accessible coal seams are played out. The remaining coal lies in seams that are either very thin and expensive to mine or deep underground and expensive to mine.

The state is blessed by one thing, however: the high quality of the coal. Virginia coal tends to have the characteristics that make it appropriate for conversion into coke, which is used in making steel. Metallurgical coal, which is currently enjoying an export boom, accounts for 60% to 70% of the coal coming from Southwest Virginia. Deep underground mines cost tens of millions of dollars to develop, and the big coal companies don’t make that kind of commitment unless they have long-term contracts that lock in the price. Compared to the cost of developing a new mine or keeping an existing one open, a half million dollar tax credit sounds like a drop in the bucket. I would like to see the evidence that the tax credit will encourage additional production.

Rather than doubling down on an inevitably declining coal industry — when the coal is gone, it’s gone and nothing can bring it back — I would urge Southwest Virginia’s legislators to consider applying their energy and creativity to diversifying the economy.

I know of two technologies being developed at Virginia Tech that could bring economic benefits to the region. One is a laser sensor that can be deployed in underground mines to detect methane, carbon monoxide, and carbon dioxide for the purpose of averting explosions like the one that killed 29 miners at the Upper Big Branch mine in West Virginia in 2010. That technology, if deployed, could create a significant business opportunity for a Southwest Virginia engineering firm.

Another technology would process gob piles — the mountains of waste resulting from the separation of coal from mineral rock. Gob piles contain considerable coal fines. Another Virginia Tech technology would capture those fines along with other potentially valuable minerals. That innovation holds out the potential for extracting wealth from the massive gob piles dotting the coalfields in Virginia, the Appalachian coalfields, and even the rest of the world.

Then there’s the idea of rebuilding the regional economy in part around outdoor tourism. A half million dollars a year arguably would do a lot more to jump-start positive change in that direction than it would to rejuvenate coal mining. The Bacon family is planning a vacation this fall to New England, and I’m especially looking forward to seeing if the small mountain towns of the People’s Republic of Vermont are bucking the trend of rural decline. I would be delighted if Mr. Kilgore and Mr. Chafin should decide to join us in looking for alternate models of economic development!

Comstock Supports the Tax Cuts. Do her Democratic Foes?

Alfredo Ortiz

by Alfredo Ortiz

Democrats have put Virginia’s 10th Congressional District, represented by Republican Barbara Comstock, in their crosshairs in their attempt to take back the House of Representatives on Election Day in November.

Seven opportunistic Democratic challengers have entered the race so far, recognizing their chance to represent this historic swing district that favored Hillary Clinton by ten percentage points in 2016, and Democratic Gov. Ralph Northam by a similar margin in 2017. Politico has named this race one of the top-10 to watch on Election Day.

Last October, Public Policy Polling found Rep. Comstock trailing a generic Democrat opponent by nine points, with a favorability rating of just 32 percent. “She’s a clear underdog,” said David Wasserman, who analyzes House races for the nonpartisan Cook Political Report, the day after the election last year.

But a lot has changed since then. Most notably, Congressional Republicans, including Comstock, passed historic tax cuts over the opposition of every Congressional Democrat. Virginia 10 voters deserve to know whether Comstock’s Democratic challengers would carry out national Democratic leaders’ promise and vote to repeal these tax cuts if they are victorious.

The answer to this question is especially important in Virginia’s 10th District because tax cuts have disproportionately helped its residents. The median income in the counties that make up the district are among the highest in the nation at over $120,000, meaning the median constituent is taking home thousands of dollars more each year as a result of less federal tax withholding.

Virginia’s 10th has also significantly benefited from the trend of hundreds of major national employers directing billions of dollars to millions of employees because of their tax cut savings. For instance, Capital One Bank, one of Virginia’s biggest employers whose headquarters are located in the 10th District, used its tax cut savings to raise its minimum wage to $15 an hour. And Walmart, the state’s largest employer, raised its base wage to $11 and gave its employees significant bonuses because of the tax cut.

Verizon and BB&T, the third and fifth largest employers in Northern Virginia, respectively, are also rewarding their employees with share payouts or $1,200 bonuses. And other major state employers including Bank of America, The Home Depot, AT&T, Starbucks, and Comcast are giving their employees up to $1,000 bonuses because of the tax cuts Rep. Comstock helped pass. These are the same tax cuts that  congressional Democrats called “theApocalypse,” “the worst bill in the history of the United States Congress,” “a heist,” and “highway robbery.”

Despite this vast evidence demonstrating that tax cuts have been a major success in allowing ordinary Americans to keep more of their hard-earned money, leading Democrats are doubling-down on their opposition and promising to repeal them if they retake Congress. Pelosi has called for “replace and repeal.” Senate Minority Leader Chuck Shumer has called for “a drastic overhaul.” Such moves would raise taxes on ordinary residents of Virginia’s 10th District and tens of million Americans across the country.

Democrats’ unwillingness to admit they made a mistake by opposing tax cuts has coincided with their House of Representatives polling advantage being cut in half. Democratic challengers in Virginia’s 10th District haven’t been clear about whether they would repeal the tax cuts if they win in November. Voters must demand to know where they stand on this issue given the implications for their paychecks. The answers might make the the difference between Democrats hitting their target or not.

Alfredo Ortiz is president and CEO of the Job Creators Network.

Spike the State-Local Tax Deduction

Average state and local tax deduction by congressional district. Source: Bloomberg

A provision in the proposed tax reform package working through Congress would eliminate the deduction for state and local taxes, hitting high-income earners in high-tax states most of all. According to the calculations of Bloomberg Politics (as seen in the maps above and below) residents of congressional districts in Central and Northern Virginia would be among those most impacted.

It amuses me to see how foes of tax reform highlight this negative impact without looking at the larger context. The tax reform package that hurts higher-income households by eliminating the state-local tax deduction more than offsets that loss by lowering tax rates for higher-income households. Unfortunately, Bloomberg doesn’t publish a map showing how it all nets out.

The architects of tax reform maintain logical consistency. They favor measures that reduce loopholes, broaden the tax base, and lower tax rates for everyone. The critics’ arguments are incoherent. They favor preserving the state-local tax deduction, which favors the rich, and oppose the lower tax rates, which favor the rich. They don’t reveal the real reason for their opposition, that the state-local tax deduction will hurt high-tax states and localities.

The state-local tax loophole is worth about $1.3 trillion over 10 years, according to Bloomberg. That’s a massive subsidy for high-tax states and the Blue State tax-and-spend governance model, and it insulates those states from the consequences of their policies. Eliminating the subsidy will accelerate the flight of high-income households from high-tax states (mostly blue states) to low-tax states (mostly red states), thereby undermining blue-state tax bases and accelerating their rush to fiscal ruin.

Insofar as Virginia is a purple state trending blue, eliminating the loophole will impact our state more than most. On the other hand, if Virginians had to absorb the full cost of our tax-and-spend habits, we might be more parsimonious with our public dollars. And that is a thing that many devoutly wish for.

Virginia: 31st in Tax Climate

Source: The Tax Foundation

Just a reminder: Virginia is not a low-tax state. According to the Tax Foundation’s 2018 ranking of state business tax climate, Virginia scored 31st. While the Old Dominion scores pretty well for corporate taxes and sales taxes, it flunks the grade for individual taxes and unemployment insurance taxes.

Here are the category rankings:

Overall rank: 31
Corporate taxes: 6
Individual taxes: 40
Sales taxes: 10
Property taxes: 31
Unemployment insurance taxes: 41

If you are taxaphobic, the best states in the country are Wyoming, South Dakota, Alaska, and Florida. The worst: New Jersey, New York, California, Vermont, and Minnesota.

On the positive side, higher taxes pay for higher levels of services and amenities such as schools, higher-ed, public safety, roads, mass transit, Medicaid, and social services. On the negative side, you don’t always get what you pay for. In many states, public employee unions have captured a big share of tax revenue, and lots of the money has been spent to little effect. Tax-paying citizens continue to vote with their feet, leaving high-tax states and seeking opportunity in lower-tax states.

Update: “The Tax Foundation’s State Business Tax Climate Index (SBTCI) that you cited actually is not primarily intended to be reflective of business tax burdens in states,” notes Stephen Moret, president of the Virginia Economic Development Partnership (VEDP). “It is more of a ranking of tax complexity or tax structure than it is a ranking of state/local tax burdens.” See his full observation highlighted in the comments section.