Bacon's Rebellion

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Tell Me Again. Why Are Virginia Taxes So Bad?

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by

Dick Hall-Sizemore
in

by Dick Hall-Sizemore

I have taxes on my mind.  It is sort of hard not to be thinking a lot about taxes these days. I just finished compiling my tax returns (yes, I realize that I am a procrastinator). The Governor is telling me that the state taxes me too much and he wants to give some of it back and lower my future taxes. Many folks on this blog also say that my state taxes are too high.

I must admit that I have not paid a great deal of attention to the details of my state tax returns in recent years. I just plugged the numbers into Turbotax and whatever return it spit out, I filed and paid what I owed or got the refund it said I was due, whichever was the case. (You have to admit; that state form produced by the electronic tax filing programs is not easy to follow without a program.)

This year, with all the talk about taxes swirling about, I decided to pay more attention to the details of Virginia’s income tax provisions. I found that they are not nearly as bad as the Governor and others make out. At least not for retirees, like me.

First the big picture. Each year, the Joint Legislative Audit and Review Commission publishes comparisons of Virginia with other states in numerous categories. First, compared to people in other states, Virginians are relatively well off. In 2021, the median personal income of its residents ranked 12th in the country. However, our tax burden is in the middle to lower half of all states. In per capita state taxes, Virginia ranks 30th; in per capita local taxes, 17th and in per capita total state and local taxes, 24th.  Finally, Virginia’s state and local taxes are 8.6% of personal income, which places us 38th in the nation.

I realize that state per capita tax data does not adequately reflect the wide range of taxes paid. Lots of folks in Northern Virginia pay much more than people in Southwest Virginia, or even those of us in Richmond. However, on the other side of the coin, those people in Northern Virginia also make up most of the upper portion of the “personal income” range that goes into calculating the median. In fact, three Northern Virginia jurisdictions (Loudoun, Fairfax County, and Arlington) were in the top ten highest income jurisdictions in the country in the U.S. Census’ latest American Community Survey, with Loudoun at the top.  (Probably the reason that the city of Falls Church is not included in that list is because it is limited to jurisdictions with a population of 65,000 or greater.)

From a personal perspective, for retirees, the Virginia income tax provisions do not seem Draconian at all. Right out of the gate, the Social Security payments for my wife and me were deducted from our federal adjusted gross income (FAGI).  We then qualified for the “age deduction” of $12,000 each, resulting in an additional $24,000 reduction in the FAGI.  Then there was the standard deduction of $9,000, personal exemptions of $3,460, and a deduction for long-term care insurance premiums. In the end, my state income tax bill came to less than $2,000. I can’t complain.

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42 responses to “Tell Me Again. Why Are Virginia Taxes So Bad?”

  1. tmtfairfax Avatar
    tmtfairfax

    Just as data points, NC’s standard deductions are: 1) single $10,750, 2) Married Filing Jointly/Qualifying Widow(er)/Surviving Spouse $21,500, 3) Married Filing Separately (depends on whether the other spouse itemizes her/his deductions. If so, $0. If not, $10,750, and 4 Head of Household $16,125.

    Mortgage and real estate tax deductions are limited to $20,000. NC also adopted the SALT cap. I’m not sure how the real estate tax and the SALT caps work together. There are no personal exemptions.

    The across-the-board tax rate for individuals is 5.25% through 2021. Starting January 1, 2022, the rate is 4.99%. The rate will be reduced further each year until it reaches 3.99 percent starting January 1, 2027.

    The corporate income tax is being phased down from the current 2.5 % to zero. My understanding that these changes have had the support of the Democratic Governor and the Republican legislature.

    I understand that NC’s attractiveness to business has increased significantly, such that it’s gone from a economic lagger to a leader in the Southeastern U.S.

    1. Stephen Haner Avatar
      Stephen Haner

      Dick and Larry don’t care. Unmet needs!!

      1. LarrytheG Avatar
        LarrytheG

        You have to match the needs with the funding.

        Yeah, I know it’s such a buzzkiller to advocate cuts without a clue as to the impact of those cuts…. it’s called fiscally responsible budgeting and EVEN some GOP still practice it!

        1. tmtfairfax Avatar
          tmtfairfax

          Rarely is anything actually cut. Ask Dick HS. What normally happens is that the increases are less than government agencies and spend-more advocates want.

  2. James A. Bacon Avatar
    James A. Bacon

    The most recent data comes from the

  3. LarrytheG Avatar
    LarrytheG

    Dick is right about seniors. If you have a modest income as a senior, you’ll come out pretty good. Haner must be older and rich, eh?

    Haner focuses on things a bit selectively IMHO. You gotta look at the whole picture which is why some in the GA Senate both GOP and DEM want a better look before they leap.

    There’s also a disconnect between the pro tax-cut folks – and what happens to services if cut.

    For instance, a GOP Senator just wrote this;

    https://uploads.disquscdn.com/images/197b5c3c780bf63c295dd70ed6ced873764fe69702583027848bded6faf9b71f.jpg

    https://uploads.disquscdn.com/images/61dc972d2476bbf424589f25ca13608b093a5cbe229e05ab4b2b86b026fd0b12.jpg

    https://richmond.com/opinion/columnists/emmett-hanger-column-properly-fund-core-services-for-virginians/article_53142e93-4ef7-54e1-82d8-d278b158503d.html

    a similar lack of thinking went into the “idea” to cut gas taxes while we still have unfunded projects in Va.

    or cutting the sales tax that funds schools then claiming the state will send money from Richmond to backfill it. What kind of sense does that make. the same taxpayers end up paying taxes and now we have a more convoluted way for the funding to flow – purely for a local service.

    1. Stephen Haner Avatar
      Stephen Haner

      Right from the “Up On The Wall” crowd’s talking points. Read this again:
      https://www.baconsrebellion.com/senate-trust-us-this-time-on-tax-reform/
      I had Hanger in mind when I wrote that. How many times will you fall for this, Larry? As often as you are told to.

      And have I weighed in on any of these gas tax proposals? Have I? Ummmmm. Didn’t tout that above. Read what you will into my silence. I can go with the sales tax on food idea, although I won’t whine if the local portion remains. My bet is it does.

      My wife and I still had earned income last year so the age deduction was wiped out for us. Maybe we’ll get some of it this year. But it is on a fast slide down if you have anything more than basic retirement income.

      1. LarrytheG Avatar
        LarrytheG

        who are the “up on the wall” folks?

        I wanted to see a full budget proposal from Youngkin – not the populist hyperbole without a real look downstream. That’s what I expect from fiscal conservatives. Instead, he’s just the mirror opposite of the tax&spend crowd. He’s the tax-cuts-for-all-no-matter-what-happens-next-year crowd.

        both are losers.

        1. Super Brain Avatar
          Super Brain

          Time for a special session of the GA to look at taxes in total.

          1. LarrytheG Avatar
            LarrytheG

            And that’s what the GA Senate wants to do………..

            We need to look at revenue forecasts that include the tax-cuts as well as forecasts for services and funding.

            Read Emmett Hangers opinion piece in RTD about Medicaid compensation for care providers – both home care and nursing homes.

            We can’t have it both ways – i.e. go after nursing homes for poor care due to staff shortages at the same time we refuse to look at Medicaid reimbursements.

            This is the part where the “tax-cuts-now” crowd are mostly willfully ignorant about facts and realities – they just don’t like paying taxes.

            Some folks see this as getting money back in the hands of the taxpayers so it can go back into the economy – almost as if – the taxed money Medicaid spends on nursing home staffing does not do that. It does. It goes right back into the economy.

          2. tmtfairfax Avatar
            tmtfairfax

            We need to end the tax-exempt status on all private foundations and other nonprofits that attempt to influence public policy. Why is the Ford Foundation still tax exempt?

        2. Stephen Haner Avatar
          Stephen Haner

          The Democrats are “up on the wall,” you know the Blue wall to kill anything Youngkin wants, just ’cause.

          1. LarrytheG Avatar
            LarrytheG

            but some GOP are also on that wall, no?

            I see that GOP as principled fiscal conservatives – my heroes no matter their party affiliation and much more intelligent than the “give me my taxes back now” crowd.

      2. tmtfairfax Avatar
        tmtfairfax

        North Carolina levies a 2% tax on qualifying food statewide. The state and local levies on most other taxable goods seems to be in the 7% plus range/

  4. Stephen Haner Avatar
    Stephen Haner

    1) It is ridiculous that Virginia’s standard deduction is so low that very modest amounts of income trigger an income tax, which is supposed to be somewhat progressive. Of the states that have an income tax, about 20 have higher standard deductions. Many match the federal standard deduction. Because ours is paltry, a couple pays VA income tax on about $17,000 of income that Uncle Sam does not tax. I’ve long proposed we fix that.

    2) It is ridiculous that none of our tax provisions are adjusted for inflation, year after year, again a real contrast with the federal system and many other states. It has been 40 years since we’ve seen inflation like this, but it will push quite a few modest income families into that highest Virginia tax bracket and further shrink the value of other things (like that age deduction.) More and more income gets taxed at the max. Inflation is a great revenue enhancer for this state. And the politicians know it, and know its a sneaky tax increase.

    Youngkin and the House have proposed to fix the first, and until everybody climbed up on their wall it was a strongly bipartisan and bicameral idea. He ignored the second and the indexing bills died. Too bad. Should be in the negotiations.

    As long as you’re happy, that’s all that matters. I tend to worry about others who struggle to pay their taxes.

    1. Randy Huffman Avatar
      Randy Huffman

      Are Virginia taxes horribly high? No.

      Should the tax code be adjusted to reflect significant surpluses? Yes.

      Is Larry right about taking a more comprehensive view on this? Maybe. Since it was never proposed to cut taxes 100% of the surplus, I don’t see what is being proposed as that potentially risky. I fall in the camp that if you give the money to politicians they will spend it, and then some more.

      As I am working and just finished my taxes too, I will note two things:

      1) I took the standard deduction for Federal, but as was noted below by Stephen, the Virginia Standard deduction is way too low…. And they require you to take it if you take the Federal standard deduction. Shockingly, my itemized deductions, even after making the adjustment to take out State taxes, was well above the Virginia Standard deduction, but I had to take the lower amount. To say this is not logical or fair is an understatement.

      2) Virginia taxes capital gains and qualified dividends at the same flat rate as regular income. While I get this for higher income filers, I would think they could at least phase it in for lower layers of income.

    2. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      We could fix no. 1 by changing the provisions of the earned income tax credit.

      As for all those states that have higher standard deductions than Virginia, many of them also have higher rates on the upper income brackets. One should not focus on one aspect of tax policy in isolation in comparing states, but look at the tax policies as a whole.

      And I limited my comments to retirees. Virginia does not tax Social Security income, which Uncle Sam taxes. Nor do the feds provide an “age deduction” of up to $12,000 per individual. (That more than makes up for the difference in standard deductions.) I come back to my earlier point: rather than focus on one aspect of tax policy, it is better to consider the policy as a whole.

      1. LarrytheG Avatar
        LarrytheG

        re: ” I come back to my earlier point: rather than focus on one aspect of tax policy, it is better to consider the policy as a whole.”

        totally agree but the “cut-taxes now’ crowd don’t think that way.

        perhaps if we gave a list of services to cut, took a vote, and any item that got a majority of votes, we cut…. 😉

        1. Stephen Haner Avatar
          Stephen Haner

          Repeat after me, Larry. Even with the tax changes, the House budget increases spending as large as any budget I’ve seen. No cuts.

          1. LarrytheG Avatar
            LarrytheG

            increases in what? Are you still pushing the idea of increased spending from Medicaid pass-through money from the Feds? 😉

            what other increases?

            certainly not in that area Hanger is talking about, no?

          2. Stephen Haner Avatar
            Stephen Haner

            Yes. But he would spend even more.

      2. Stephen Haner Avatar
        Stephen Haner

        Right, Dick, you just care about….YOU.

        1. Nancy Naive Avatar
          Nancy Naive

          If you are against taxes, you’re a social warrior. If you’re not, you’re self centered.

          Are you Grover Norquist reincarnate? Is he dead?

  5. James A. Bacon Avatar
    James A. Bacon

    The most recent data I could find comes from the Tax Foundation based on 2019 data.

    Virginia’s state-local tax burden in 2019 was $5,854 per capita, or 24th in the country.

    Virginia’s state-local tax burden as a percentage of state income was 10.0%, also 24th in the country.

    Twenty-five years ago Virginia was a low-tax state. It has crept slowly but steadily higher, and is now a medium-tax state. But that same upward climb in the tax burden has coincided with a decline in economic competitiveness, sub-par economic growth, and a shift from net in-migration to net out-migration. That’s not a price everyone is happy to pay.

  6. Nancy Naive Avatar
    Nancy Naive

    “I can’t complain.”

    You can’t complain?! I’m singing! For the first 4 years of the last 9, we lived on CG&Divs alone, and since I controlled what I bought, sold and when, 3 of those 4 were at 0% Fed. I was a Mitt Romney taxpayer. The State hit me harder because they don’t color money and I didn’t qualify for the age deduction.

    After turning 66, I started SocSec and Uncle Sugar taxed his 85% of that and the additional income pushed the CG&Divs into some taxed at 15%. Oh well, free ride over. But then, Va. didn’t tax the SocSec, and we got nice chunks of the age deduction and things went back to normal, Feds taking more than the State.

  7. Nancy Naive Avatar
    Nancy Naive

    As a note: the worst mistake Uncle Sugar ever made was the Roth IRA/401(k). With a Traditional, some percentage of every dollar put in and invested belonged to him. He was investing in equities by proxy.

  8. DJRippert Avatar
    DJRippert

    “First, compared to people in other states, Virginians are relatively well off. In 2021, the median personal income of its residents ranked 12th in the country.”

    This means nothing unless cost of living is factored in as a weighted average of all the families / citizens.

    “However, our tax burden is in the middle to lower half of all states.”

    Also potentially misleading. Northam and the Democrats adopted policies that tax through the electric bill charging all Virginians (including middle class people) extra so that rebates can be provided for the less affluent. This is a hidden tax.

    The same is true for in-state tuition at public schools. Middle class Virginians are overcharged so that universities have more money to hand out in scholarships for less affluent students (who, presumably, will be at least middle class after they graduate).

    Finally, sky high tolls are just another form of taxation.

    1. James A. Bacon Avatar
      James A. Bacon

      Excellent points. You really do have to take into account the regulated price of electricity and higher-ed tuition. And don’t forget toll roads!

      1. Dick Hall-Sizemore Avatar
        Dick Hall-Sizemore

        Let’s examine those “excellent points”:

        Total annual in-state tuition, fees, room, and board fees (latest avail):

        University of Maryland–24,003
        University of North Carolina–21,252
        N.C. State–21,876
        Penn State–31,216
        UVa–31,1118
        Va Tech–24,238
        George Mason–23,431

        Not a lot of difference

        Average 2020 cost of electricity per kWh (EIA)

        Va.–9.16 cents
        Md–11.15 cents
        N.C.–9.43 cents

        Pa–9.70 cents

        Tolls–they are user fees.

        1. LarrytheG Avatar
          LarrytheG

          You gave specific examples. And yes, the facts are the facts and blather is blather.

    2. LarrytheG Avatar
      LarrytheG

      Wait. You’re equating electric bills to taxes? geeze.

      and in-state tuition? Is Virginia higher than other states? Do Virginia universities work differently than non-Va ones with regard to tuition and “affluent’ students?

      Tolls ? First, congestion tolling (variable according to congestion levels) is more and more common in urbanized regions at rush hour across the country simply because most have fewer and fewer options to add more roads or even widen them – so they use variable tolls to basically try to keep traffic free flowing AND you go for free if you carpool or use public transit.

      What’s the alternative to this? it’s like you don’t like this option but don’t like other options either – at least you don’t suggest a better way.

      There are virtually no way – physically or fiscally to add major roads to a place like NoVa without knocking down developed properties – both commercial and residential. And if we don’t use variable tolls, the roads will gridlock at rush hour.

      Variable Tolls ARE a CONSERVATIVE free-market idea that came from none other than uber Conservative think tanks like Heritage and Competitive Enterprise – which JAB has largely ignored (but has discussed mileage-based fees).
      https://uploads.disquscdn.com/images/33c36416a3d248ad0586efe5c114424650a2ad97a1198f6123738208b77d0060.jpg

      So I’m curious. If opposed to electronic tolling, do you support mileage-based fees instead of the fuel tax?

      1. Super Brain Avatar
        Super Brain

        If the worthies in Richmond spend less time worrying about ideas taught in school, there would be more time to consider fiscal sanity.

  9. Nancy Naive Avatar
    Nancy Naive

    I’m moving to Pa.; no tax on retirement income. So, all those years I put it away avoiding Va. taxes on what went in and now I’ll avoid tax on what comes out! Of course, Uncle Sugar gonna love me!

    1. energyNOW_Fan Avatar
      energyNOW_Fan

      Really? Where in PA? I do my Mom’s Pa taxes all the time. 3% but she is so low income its totally free. Even Jersey gives some discount on IRA withdrawals that we do not give. Virginia wants to heavily favor lower incomes with very low taxes, both the Dems and rural Repubs insist on low taxes for lower incomes. So we are very aggressive there, which means Virginia cannot afford to also be tax friendly to middle class retirees.

      1. Nancy Naive Avatar
        Nancy Naive

        Near Harrisburg to be close to the child unit.

        1. energyNOW_Fan Avatar
          energyNOW_Fan

          Nice area…our child units moved here from North Jersey, so we got stuck here. It was quite shocking that they made that decision, which locked us in here, we had thought maybe Pa also.
          (Nittany Lion here)

          1. Nancy Naive Avatar
            Nancy Naive

            Wish we’d done it two years ago. The RE market up there is insane! If you put a for sale sign in the yard tonight, you’ll be homeless tomorrow.

            The spousal unit called the listing agent on a house two hours after it hit realtor(.)com to arrange to look at it, and got a call the NEXT day saying it went under contract. People are buying As Is and over listing price. There are no negotiations, no inspections. Insane!

            We’re probably going to just rent a funished apartment to give us time to look.

          2. energyNOW_Fan Avatar
            energyNOW_Fan

            Best wishes

        2. tmtfairfax Avatar
          tmtfairfax

          Good luck with a move.

          1. Nancy Naive Avatar
            Nancy Naive

            Thanks! You enjoy NC too. We all desrve a view.

  10. energyNOW_Fan Avatar
    energyNOW_Fan

    Dick your income is on the low side, and Virginia excels in giving lower income folks really nice low tax rates. Once you get a bit higher income, you are hit much harder. Our case we defer SS, and use IRA retirement income. So we do not get much SS discount, no age discount (it phases out above $90k I think), and no discount on IRA money that many other states give, plus GA took away our itemized deductions, plus we pay thru the nose on Fairfax property taxes (car+house) and we pay higher sales tax and higher gas tax. Can’t really tell the difference anymore between North Jersey taxes and NoVA taxes.

    Overall I assert we are among the tax-friendliest states for lower incomes, at the expense of higher taxes on the middle class. For the wealthy we are not too bad at 5.xx%

    (Actually what I am doing is converting Traditional IRA to Roth IRA, so I take extra income now to hopefully lower future taxes from IRA forced withdrawals (RMD’s) later)

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      I don’t consider myself low income, although I might be by NoVa standards. I never had the income to get into IRAs or Roths, etc. Just my state pension and deferred compensation. My FAGI is about the same as it was when it was before I retired. However, now with all the state deductions (age, SS, and standard), my VAGI is definitely in the low-income range.

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