Dueling tax proposals: Who gets what relief?
Many, many years ago, a favorite high school history teacher told Shad Plank the big question to answer about politics or economics was: “Who gets the strawberries?”
Or, in the case of the dueling tax proposals with this year’s state budget revisions: “Who gets what tax relief?”
The issue is the $1.2 billion windfall the state expects to see this year and next, as a result of federal tax law changes that took effect last year.
The discussion so far has been denominated in millions — as in hundreds of millions of dollars of help for the state’s low- and moderate-income working families (that’s Gov. Ralph Northam) or preventing hundreds of millions of dollars of tax increases on middle-income Virginians
(which is what House Speaker Kirk Cox, House Appropriations Committee chair Chris Jones and House Republican caucus chairman Tim Hugo say they want to do).
But scattered through the “Governor’s Confidential Technical Appendix” on the estimated impact of the federal changes — a big increase in the federal standard deduction, a cap on the state and local taxes people can claim as itemized deductions, a limit on the losses individual taxpayers can claim as well as a series of business income tax changes — are some numbers that bring the big bucks down to a size that may be easier to think about.
The main source of the state windfall will be taxpayers who had been itemizing, but decide they can save more by taking the roughly doubled federal standard deduction.
This would mean their state tax payments could rise, since Virginia does not currently allow people to itemize on their state tax return if they did not do so on the federal return — which is one of the things House GOP leaders want to change.
That higher federal deduction will probably look like a particularly good deal to households with incomes ranging from $125,000 to $150,000 — they’re the group that will be most inclined to take it, according to the technical index. About a third are expected to do so.
They’re an interesting group for other reasons. House GOP leaders, asked to define the middle class hurt by the tax changes, pointed to families with incomes in just that range.
Digging into the appendix’s data on tax returns, it seems the 254,000 taxpayers in that middle-class range will see an average decrease in federal taxes of $2,385 and an average state tax increase of $166. Not that everyone will see that, however. Most will see either no change in state taxes or a decline — the appendix calculates that about 76,000 in this group (or about 30 percent) will see state tax bills rise by an average of $402.
The biggest block of taxpaying household, the 1.9 million with gross income of $50,000 or less, will see an average cut of $146.50 on their federal taxes and a $20 increase in state taxes.
This is the group Northam is targeting with his tax relief proposal. He wants to make the earned income tax credit “fully refundable,” as the federal government does.
The credit isn’t fully refundable in Virginia — it’s capped at the amount of state income taxes you paid. Republicans say making the credit fully refundable means that people who don’t pay taxes would get checks — and that’s something that feels unfair to them.
Problem is, even minimum wage workers, if they’re putting in 40-hour weeks over the course of a year, owe state income taxes.
They also pay plenty of other taxes — including the flat 7.65 percent payroll tax for Social Security and Medicare — and that’s why Northam and most Democrats argue that the credit should be fully refundable.
In Virginia, a home health aide earning the rate Medicaid sets ($9.22 an hour) and working 40 hours a week, 52 weeks a year would get a $1,114 credit. That would wipe out a state income tax bill of $539. If the credit were fully refundable, that aide would get a check for another $582.
But over the year, that aide would pay something like $1,630 in sales, excise, car and property taxes, according to tax collection and income data compiled by the Commonwealth Center for Fiscal Analysis, a nonprofit group that focuses on how Virginia budget, education and social services policies affect low- and middleincome people.
By this analysis, that aide’s tax bill, even after the credit, would amount to $1,048 a year, or about a nickel out of every dollar earned.
Virginia Beach judge elected to SCC
General Assembly Republicans elected a last-minute, surprise candidate, former Virginia Beach Circuit Court judge Patricia West, for the open judgeship on the State Corporation Commission.
West was elected the same day her name formally surfaced, over Democratic complaints of a secretive, hasty campaign that didn’t give legislators enough time to consider her bid for the post.
The SCC oversees utility rates, the financial stability of insurers and state chartered banks as well as a series of other laws involving securities, franchising, company incorporation and railroads. Dave Ress, 757-247-4535, dress@dailypress.com