Virginia Gubernatorial Candidate Wants to Cut Taxes, But Not Enough
If revenues are still going up, you haven't cut the taxes enough.
Virginia Lt. Gov. Ralph Northam is losing most of the celebrity endorsements to his Democratic rival in the governor's race, Tom Perriello—who can count Bernie Sanders and Elizabeth Warren in his corner. Northam isn't going to be able to top that. He also can't out-crazy other candidates in the race, like Republican contender Corey Stewart, who tweeted Monday morning that the removal of Confederate monuments in New Orleans was proof "ISIS has won."
Not that Northam would want to try. He is a centrist sans brio or bombast, which is what you want in a pediatric neurologist but not necessarily what you want to get out the vote on Election Day. So while he has the backing of Virginia's Democratic establishment, he might need something to elevate his profile in the public mind.
The other day he proposed cutting the state's food tax for the poor, according to a story by Travis Fain of The Daily Press. This is an excellent idea. Virginia's food tax is only 1.5 percent, compared with 4.3 percent for other goods. But that is still too much given that the state budget, now $107 billion, has roughly doubled in real terms over the past two decades.
Northam's proposal also has the virtue of brevity. "No Food Tax" is just one letter longer than the "No Car Tax!" proposal on which Jim Gilmore rode into the Executive Mansion in 1997—and would fill the same space on a placard if you tweak the font size a hair.
Gilmore's car-tax cut turned out to be a complicated affair: It gradually reduced the local property tax on the first $20,000 of a vehicle's worth, and used state dollars to compensate localities for the loss of revenue. This turned the tax cut into a state budget appropriation. It quickly grew beyond projections (imagine that)—until state lawmakers decided to cap the amount at $950 million. Lawmakers had their own plans for the money, and letting taxpayers have it back was getting in the way. Northam's people say they want to avoid similar complexities, but they haven't yet spelled out exactly how the food-tax cut would work.
Northam's likely opponent—assuming he beats Perriello in the primary—is Ed Gillespie. He also has rolled out a tax-cut proposal that would give the state's individual income tax rates a haircut. This has led to the usual knee-jerk objections. The Washington Post tagged Gillespie "Mr. Free Lunch" and demanded to know which programs would be "slashed" to "pay for" the tax cut. Perriello blasted him for "unfunded" tax cuts that "largely benefit the rich."
Those complaints look rather feeble when Gov. Terry McAuliffe (D) is issuing press releases boasting that "January 2017 General Fund Revenue Collections Up 7.4 Percent From the Previous Year" and that "February 2017 General Fund Revenue Collections are Up 3.6% From the Previous Year" and that "March 2017 General Fund Revenue Collections Up 5.7 Percent From the Previous Year" and so on.
As the Gillespie campaign points out, his tax plan would simply reduce the growth of state revenue from a projected $3.4 billion to $2 billion over five years. Apparently some folks feel it's not enough for tax revenues to rise; they must rise at an ever-accelerating rate, and anything less calls for a "The End Is Near" sandwich board.
Similar considerations apply to Northam's proposal. A 2014 legislative subcommittee report on the food tax noted that the state forgoes $526.7 million a year in revenue by not taxing food at the same rate as other goods. People earning $30,000 or less reap 15 percent of that benefit, or about $80 million. That is a rounding error in the overall scheme of the state budget.
Critics of Gillespie's plan also knocked it, somewhat incongruously, for not being generous enough. "Average families in Lynchburg would only save $277 dollars (a year) under Gillespie's tax plan," said the Virginia Democratic Party before a GOP candidates' debate there. A former Democratic candidate for the General Assembly said average Lynchburg families would save only "$5 a week under his tax plan, and that is chump change."
But then Northam's tax proposal doesn't convey huge benefits, either. A person making $30,000 spends 11.6 percent of her income on food, on average, so eliminating the food tax for her would save her only one dollar a week. Someone making $18,000 pays a higher proportion of her income on food (about 15.8 percent), yet still would save only $40 or so over the course of a year.
But then so what? When you're just scraping by, every penny counts. Better that penny should go to the poor than to the state.
Someone—Milton Friedman?—once said if you cut taxes and revenue goes up, you haven't cut taxes enough. It's something for both men to keep in mind.
This column originally appeared at the Richmond Times-Dispatch.