Virginia state tax collections are running “well ahead” of projections, so Democratic Gov. Terry McAuliffe wants to raise public-sector pay.
Others ask: Why not give the millions back to taxpayers — or least cut them a break by adjusting Virginia’s antiquated income-tax brackets for inflation?
State receipts of estimated payments for December and January rose 31% from a year ago. The total revenue forecast is up by $245 million in fiscal 2015 and $229 million in fiscal 2016.
House Republicans voted to kill $10.2 million in new and higher fees sought by McAuliffe. Both the governor and the GOP leadership want to stash millions more into the state’s rainy day fund.
“We continue to see an improvement in our major revenue sources,” McAuliffe said. “Current trends show that Virginia’s economy is growing stronger.”
It’s unclear whether lawmakers will go along with McAuliffe’s bid to raise teacher salaries; several localities have already done so on their own. The state’s new largesse gives the Republican-controlled House and Senate an opportunity to recast Virginia’s budget for the next biennium.
Collections of payroll withholding taxes — 64% of General Fund revenues — increased 4.2%, ahead of the revised forecast of 2.9% growth. Year-to-date non-withholding revenue jumped 22.1%, well ahead of the annual estimate of 6.3%.
Such increases are driven partly by antiquated tax thresholds that push lower-income earners into higher tax brackets. Unadjusted for inflation over the past 30 years, the state tax schedule now has Virginians who earn just $17,000 a year — just above food stamp eligibility — paying the highest individual rate.
Former Delegate Barbara Comstock’s attempt to index tax tables for inflation never got out of the House last year.
Abusive tax formulas that burden taxpayers while governments roll in dough sparked a grassroots revolt in California in 1978. Voters there passed Proposition 13, which continues to freeze property taxes to this day.
Under Republican Gov. Bob McDonnell, Virginia’s budget jumped 14% from $84 billion to $96 billion in two years. While the administration rammed through a record tax increase for transit projects, officials found $1 billion in transportation funds languishing in a state checking account.
In a statement, McAuliffe cautioned:
It is critical that we keep an eye on long-term challenges that underscore the urgency of diversifying our economy to ensure stable growth and reliable services for our citizens.
At a record-setting pace, his administration continues to issue hundreds of millions of dollars in taxpayer-funded grants and tax breaks to lure businesses to the state. The governor says he needs more money for what critics call his “photo opportunity fund.” Meanwhile, hundreds of businesses have laid off workers or shut down operations in the past year. The “green agenda” pushed by McAuliffe and the Obama Environmental Protection Agency is blamed for many of the losses.
Pro-market economists maintain that low taxes are crucial to growth and diversification. In contrast, high-tax states such as New York and Illinois have lost companies and productive residents to Southern states where the tax climate is more benign.
Jared Walczak, policy analyst at the Tax Foundation, said neighboring North Carolina, West Virginia, and the District of Columbia are now using “triggers” to lower taxes when revenues exceed expectations. Even Massachusetts, which earned the sobriquet Taxachusetts, dropped its income-tax rate last year when collections came in above projections.
John Taylor, president of the Virginia Institute for Public Policy, floated a plan in 2005 to peg any tax hikes to population increases and inflation. In the event of an increase, the proposal included “a referendum for people to say whether they wanted their money back.”
“No politicians of either party liked it,” he said.
Read more by Kenric Ward at Watchdog.com.