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That Didn’t Take Long
By Stephen J. Rossie

Square2017 imageRICHMOND, Va – That didn’t take long. As soon as discussion began about what to do with the massive influx of money storming into Virginia, Governor Ralph Northam rolled out a plan to spend it.

The current fiscal year is projected to have a $555 million surplus due to the Trump tax cuts. Lawmakers also are banking on $300 million in projected Internet sales taxes due to a recent decision by the U.S. Supreme Court that now allows states to tax online purchases. Further driving the economy is an increase in defense spending after years of decline (during which policy makers frantically debated ways to diversify Virginia’s military dependent economy).

Then there’s the "free” Obamacare Medicaid expansion money, about $2 billion worth. Also filling the cash pipeline in the future is the possibility of Native American run casinos as well as sports betting. As for now, though, lawmakers must address what normally is a noncontroversial issue — conforming Virginia’s tax code to the federal version.

Typically, conforming Virginia’s tax code to changes made to the federal code the previous year, are unanimous pro forma votes taken at the beginning of each General Assembly session and signed by the governor in order to take affect immediately to avoid confusion and properly prepare state policy in time for tax filings later in the year. Getting the two-thirds emergency vote this year won’t be so easy.

Republicans, badly split over the issue of expanding Medicaid this past session, a split Northam expertly exploited to pass the mammoth record Medicaid increase, are united in opposing a plan he unveiled late last week. In it he proposes to expand Virginia’s version of the federal Earned Income Tax Credit to provide "refunds” to low income Virginians who don’t owe state income taxes. General Assembly Republicans, who have a one-seat majority in each chamber, instead calculate his numbers as a tax increase on the middle class people who actually pay taxes.

Ironically, tax cut opponents, who typically groan about their "cost” to government — as if it’s the government’s money — despite the increased economic activity generated by the cuts (as is happening now) that more than "pays” for itself, are not at all cautious about the real cost of cutting checks straight out of the state’s treasury to an estimated 600,000 people who do not pay state income taxes and which will cost about $250 million. The "refunds” actually would be direct payments since there is no overpayment of income tax to those individuals.

House Appropriations Committee Chairman Chris Jones (R-Suffolk) said there would be serious consideration of conforming in areas where the federal changes repeal or reduce certain individual deductions, but opposed state payments to those who didn’t pay taxes. House Speaker Kirk Cox (RColonial Heights) warned that while the business tax cuts in the federal law are permanent the individual cuts are only for 10 years pending further action by Congress, meaning state lawmakers must project future revenues before spending them now.

As usual with taxes and spending, it’s a game of semantics; with the administration and its allies claiming the federal tax cuts have increased taxes on low income Virginians. Actually, their overall tax bill has decreased because of a much smaller federal tax liability that overwhelms a slightly larger state tax.

 





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