Reality check: 2017 Virginia governor's race



Reality check: 2017 Virginia governor's race

    What voters need to know about taxes in Virginia this election season 

    by Amanda Iacone 
    All three candidates for Virginia governor are talking about taxes this election season. And it’s about time, says Laura Goren, research director for the Commonwealth Institute for Fiscal Analysis. 
    She says the state tax code hasn’t been updated since 1986 and doesn't reflect the state's digital economy or the cost to provide services. So what are the candidates proposing and what could it mean for your checkbook?
    Republican Ed Gillespie argues a tax cut and changes to tax exemptions are needed to give a shot in the arm to the state's economy. 
    Democrat Ralph Northam wants reforms to ease taxes on the lowest-earning Virginians and offer targeted tax relief to rural areas. 
    And Libertarian Cliff Hyra wants to make more wholesale changes to how income is taxed and eliminate local business taxes. 
    First, here's some background. 
    Virginia’s top tax bracket — starting at just $17,000 a year — hasn't changed in decades and neither has the top marginal tax rate — 5.75 percent. 
    What that means is an average worker — say a teacher — pays the same top tax rate as a millionaire, Goren said. (Learn more about the difference between a marginal and effective tax rate in our audio extra.)
    "We do need to modernize our tax code in the state," she said. 
    The state's revenue hasn't kept up with the growth in the state's economy in the last three decades — making it harder to pay for basic services, such as transportation, public education and health care, Goren said. 
    On to the details of the plans. 
    Gillespie proposes a 10 percent tax cut to that top rate — bringing it down to 5.15 percent. But he’s not proposing a change to the tax bracket; the top rate would still kick in at $17,000 of income. His campaign says that the cut would save a family of four almost $1,300 a year. He would phase in the cuts over three years. 
    Northam wants to eliminate the 2.5 percent sales tax on groceries — a tax that is shared between the state and localities — saying the tax disproportionately hurts low-income Virginians. He’d also convene a commission to study reforming the state tax code further. 
    Both proposals would save middle-income Virginians nearly the same amount of cash each year — roughly $136 on groceries or $147 in income taxes on average, according to an analysis by the Commonwealth Institute. The benefits for low-income and the wealthiest Virginians would vary widely. (Read the full analysis here.)
    So what do we mean by “middle-income earners?” Those are Virginians earning between $41,000 and $67,000 a year, according to Goren. Incomes tend to be higher in Northern Virginia, however. In Fairfax County, for example, the median household income is much higher — $113,000, according to county estimates. 
    Gillespie argues his tax cut would cost the state $1.4 billion, but future economic growth would make up for the revenue hit. Northam's grocery tax cut would cost the state about $381 million in addition to the $254 million local governments would lose, according to the institute. 
    Hyra is calling to exempt the first $30,000 of income for individuals and $60,000 for married couples before any state income taxes would kick in. The result could save mid-earners about $1,000 a year on average, according to the institute. His proposal could shave $3 billion to $5 billion from state coffers.
    All three candidates also want to reduce or eliminate local taxes that businesses pay on inventory and gross income. State lawmakers have been trying to roll back such taxes for years. 
    So can voters expect that real tax reforms are ahead? Not so fast, says Goren. 
    Many lawmakers and candidates have proposed tax changes in the past, but the proposals have gained little traction, Goren said. 
    Eliminating tax exemptions — sometimes called tax preferences — are typically opposed by those who benefit — such as mortgage holders or hybrid car owners. On the other hand, tax cuts reduce funding the state needs to pay for police, teachers, even doctors and jail guards. And lawmakers have been equally hesitant to raise taxes or create new taxes. 
    While the goal to reform taxes is laudable, tax changes in Virginia can be very hard to achieve, Goren said. 
    Next week: A look at public education in Virginia and the candidate's proposals. 
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