Corporate tax is already exploding in Virginia

by Steve Haner

First published this morning in the Roanoke Times.

With Virginia’s fiscal year now three quarters over, and essentially a year since the depths of the COVID-19 recession, the state’s tax revenues are skyrocketing. Despite reports that the boom is the result of economic reboundit remains clear that changes in tax policy under Gov. Ralph Northam are the main driver.

Usually, state financial reports compare results from year to year. Instead, compare the recent data to four years ago. Four years ago It was Governor Terry McAuliffe nearing the end of his term as President Donald Trump began work on what would be his tax legacy, the Tax Cuts and Jobs Act of 2017.

In the four years since the March 2017 report, aggregate state general fundraising to date has increased by 26%, nearly three times the core inflation rate for the same period (minus of 9%). This is an additional $ 3.35 billion over four years. there is at the same time. It’s just the general fund, ignoring all the other ways the state taxes us, like last year’s gas tax increases.

About half of the additional General Fund revenue came from personal income tax withholding, up 17% or over $ 1.5 billion. This is the biggest income category, so you would expect it to be ahead of the pack. But it only leads in dollars, not in percentage growth.

Corporate income tax has increased 68% from four years ago. The revenue category which includes state tax on real estate transactions recorded in courthouses increased by 72%. State policy did not trigger the spike in house prices behind the soaring registration taxes. But the state’s intentional policy has increased the corporate income tax harvest by two-thirds, to $ 315 million more than four years ago.

Just behind these categories are estimated income tax payments, which come from people with self-employment or partnership income, or income from investments or retirement accounts. These revenues increased 51% in the first nine months of this fiscal year compared to four years ago. This increase also reflects intentional political decisions.

To round out the main categories, sales and use tax revenue increased 23% from four years ago. Much of this is due to the General Assembly’s decision to impose a sales tax on distance purchases, arguably a correct policy but still a political decision.

Both corporate income tax and estimated personal tax revenues have been boosted by the state’s decision to tax a substantial amount of Federal Wage Protection Program business rescue funds. The General Assembly’s decision to allow a deduction for the first $ 100,000 of such revenue left billions more subject to Virginia tax.

Most of the rise in corporate income taxes can be attributed to decisions made under the Tax Cuts and Jobs Act. The 2019 General Assembly followed Northam’s recommendations and complied with the various ways TCJA eliminated tax deductions and preferences. He refused to match federal tax rate cuts. The same tax rates were applied to higher levels of taxable income, producing more tax.

By allowing only a small increase in the standard deduction for individuals, an exceptional tax has also been imposed on many of them. For the richest, the coup de grace was the General Assembly approval of a state-level wealth tax, a form of Pease limitation to cap deductions.

The state is not done with corporate taxes. The General Assembly has ordered the companies of Virginia who are part of affiliated groups to prepare fictitious tax returns for 2019 using an approach known as the combined unitary return. The main targets are companies that operate in multiple states. The theory is that taxing each entity separately (like Virginia does) allows businesses to pay less tax, so they should be required to file a unified return.

Consideration of these sample statements may prompt the General Assembly to make combined statements mandatory.

In November 2017, just after Northam was elected, the Commonwealth Institute for Fiscal Analysis published an article with a list of complaints about Virginia’s tax system as it was. Read it and the parallels will hit you. He advocated online sales taxes, increased corporate tax collections, new state rules on employee classification, and a clear withdrawal from Virginia’s old practice of confirming to the IRS.

The imposition of a combined unit declaration on the largest taxpaying companies will tick another box on this list. The recent surge in state revenue growth in Virginia hasn’t come primarily from economic growth or federal stimulus spending. Taxes have been consciously and substantially increased following a progressive roadmap.

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