by James A. Bacon
In the previous post I discussed Virginia’s sluggish economic performance and the power of institutional inertia to discourage fresh thinking about economic development. One exception is a recent report published by the Thomas Jefferson Institute for Public Policy (TJI).
Calling upon the resources of Chmura Economics & Analytics and the Beacon Hill Institute, TJI President Michael Thompson asked if it were possible to restructure Virginia’s tax code to spur private investment and job creation.
In “Tax Restructuring in Virginia: A Revenue Neutral Path for Improving Our Economy,” Thompson’s team explored nine scenarios for eliminating three hated business taxes — the Business Professional Occupation Licensing (BPOL) tax, the Machine and Tool (M&T) tax and the Merchants Capital (MC) tax — and replacing lost revenue by means of a restructured sales tax.
According to the report, the optimum scenario would increase employment by 79,000 jobs over the baseline projection, bolster investment by $287 million, and pump up real state Gross Domestic Product by $8.4 billion. The key features:
- Eliminate the BPOL, M&T and MC taxes
- Eliminate the lowest bracket in the personal income tax ($0 to $3,000), and cut other income tax brackets by 10%
- Expand sales tax to cover all exempt sectors of the service economy, except health care.
We can debate the particulars. How good are Thompson’s data and how valid is his economic simulation model? Can the results be improved upon by considering other scenarios. And, my main concern, would we be creating problems for ourselves by taking state tax revenues (the sales and income taxes) to reimburse local governments for lost BPOL, M&T and MC revenues? Governor Jim Gilmore did something very similar in partially phasing out the car tax. How did that work out?
Those issues are all worthy of discussion. But let’s look at the big picture. What other initiatives can you name that (a) are tax neutral and (b) have the potential to create 79,000 jobs over the next five years? If TJI’s idea creates only half the jobs forecast by its economic model, this idea is well worth pursuing.