Tax Justice Digest stories about Virginia
At the request of Governor Tim Kaine, the Virginia legislature will be convening in a special session next month to figure out how to pay for much-needed transportation maintenance. The solution most observers expect to come out of that session will involve some combination of increases in the gas tax, in the sales tax, and/or in vehicle-related fees. Unfortunately, each of these options is regressive, taking a larger share of the income of lower- and middle-income taxpayers than from their wealthier neighbors. A recent report from the Virginia-based Commonwealth Institute offers a couple of inexpensive options for policymakers to offset the disproportionate impact these tax increases will have on more vulnerable low-income families.
Along the same lines as a program recently enacted in Minnesota, the report recommends coupling any gas or sales tax hike with a $30 credit per family member for families earning less than $20,000 per year ($40,000 for married families). By limiting the credit to only low-income families, this option would be a very inexpensive way of protecting families in need from further strain upon their already tightening budgets. The credit would cost only $80 million per year, while a one cent sales tax increase would raise $940 million and a ten cent gas tax hike would raise about $500 million. Even states not contemplating a gas tax hike should give consideration to the idea of new or expanded low-income credits. A refundable credit of this sort is much preferable to the gas tax holiday shenanigans being floated at both the federal and state levels as a solution to the squeeze many families are feeling.
In addition, the report suggests making the state’s Earned Income Tax Credit (EITC) refundable. Of the over twenty states that currently offer an EITC, Virginia is one of only three that fails to refund amounts of the credit beyond one’s income tax liability. The result of this is that for those low-income families who owe little or no income tax, the EITC is of very little use in offsetting the impact of regressive sales and property taxes. Failing to make the EITC refundable denies assistance precisely to those families who need it the most.
This week tax justice advocates in Virginia (including the Commonwealth Institute and the Virginia Organizing Project) defeated a bill that would have favored large companies with out-of-state business at the expense of smaller "mom and pop" establishments. House Bill 1514 had been approved by a daunting 94-0 vote in the House, but then the bill hit a massive road block in the Senate Finance Committee, which voted 9-7 to not take action on the bill this year and instead carry the bill over to next year.
Despite a growing consensus that imposing income taxes on families living in poverty is a terrible idea, many states continue to do so. According to a new Center on Budget and Policy Priorities report, "The Impact of State Income Taxes on Low-Income Families in 2006," 19 states collect income taxes on two-parent families of four who live below the federal poverty level. The report discusses some of the options available to states to prevent those in poverty from having to spend their limited resources on income taxes, including state Earned Income Tax Credits (EITCs), no-tax floors, and personal exemptions and standard deductions.
The good news is that states are increasingly seeking to avoid imposing their income tax on those who can least afford to pay it. A promising example of this is in Alabama, where the efforts of Alabama Arise have helped to spearhead state income tax changes that have decreased the income tax on those living in poverty by increasing the income filing threshold used to determine whether income taxes are owed (from an unbelievably low $4,600 to a still egregious $12,600). Although the state still ranks at or near the bottom in terms of the state income tax imposed on its poor, additional reform proposals have been made this year that would further increase the income threshold to $15,600 or $15,800.
Another positive development has occurred in Virginia, where lawmakers recently enacted a law that will raise the state income tax filing threshold from $7,000 to $11,950 for individuals and from $12,000 to $23,900 for couples.
Alabama and Virginia represent two examples of positive developments in decreasing the disproportionate tax imposed on the working poor by nearly every state. An even better solution to this problem would include refundable tax credits, like those found in the federal (and increasingly within state) EITC's.
The stoplight has turned yellow for Virginia legislators in their attempt to pass transportation funding — now will they speed up or slam on the brakes? With the state legislature set to adjourn on Saturday, the House and Senate have appointed conferees to negotiate a compromise to raise much needed revenue for transportation projects.
While both proposals would authorize the raising of $2 billion in bonds, the House's proposal would garner additional transportation funding through an annual diversion of $250 million from the state's general fund as well as through increases in user fees and diesel fuel taxes. Meanwhile, the Senate's proposal would avoid a general fund diversion and instead raise the additional funding by implementing new auto registration fees of $150 per driver.
Last week, Virginia Governor Tim Kaine unveiled his proposal to increase the state's income tax threshold. This proposal comes three years after former Governor Mark Warner signed into law a massive tax restructuring that was mostly geared towards adequacy. The current Governor’s proposal builds on past tax reform efforts but is also intended to make the tax structure more fair. He's proposing to increase the personal income tax filing threshold from $7,000 to $12,000 for singles and from $12,000 to $24,000 for couples. Governor Kaine's proposal is a small step towards tax fairness but doesn't do much to offset the regressivity of the state's tax structure.
Sales tax holidays are growing in popularity this year with four more states, Alabama, Maryland, Tennessee and Virginia, joining nine others and the District of Columbia in waiving sales and use taxes for a limited time during July and August. To see a list of participating states and tax holiday dates, click here.
As ITEP staff told USA Today earlier this week, "This tax break makes sense for lawmakers because it's cheap and avoids real reform." State legislatures claim that tax holidays alleviate the tax burden on working families and jump-start local retail businesses. In reality, however, sales tax holidays are a political gimmick that probably helps consumers less than proponents claim.
