If there are any impartial observers left listening to the debate in Washington, D.C. on tax reform, they must be left scratching their heads over what they are hearing. When the wealthy have never had as much money as they have today, leadership in Congress is considering a tax bill that will cut the taxes of the very richest.
When income of the lowest to the middle classes has been stagnant or falling for decades, the latest tax reform proposals would raise their taxes. Under the guise of simplifying taxes, we are about to simply raise the taxes of those least able to pay and to enrich those who already have more money than they can spend in a century. Aren’t there enough sensible members of Congress left who have not sold out to the monied interests to put a stop to this craziness?
Members of Congress may tell me to tend to my own knitting at the state level, but actions at the federal level do impact state budgets. Virginia has been particularly dependent on federal spending even though there has been an effort to reduce that dependency in recent years. While Congress can approve an unbalanced budget like the one being discussed that will add more than $1.5 trillion to the national debt, states cannot afford that irresponsible luxury.
Virginia must pass a balanced biennium budget in 2018; the task will not be easy. A recent report by The Commonwealth Institute found that “Virginia’s current revenue system isn’t keeping up with changes and growth in the overall economy, and that’s putting the future prosperity of families and businesses at risk.” (The Commonwealth Institute, “A Tax System for Yesterday: Slow Revenue Growth amid Economic Change, November 13, 2017).
The Institute found that “the way the current revenue system works was designed decades ago, with provisions that no longer work for today’s economy…” For example, the shifts in consumer spending and growth in e-commerce nearly doubling in the last decade have contributed to a decline in state sales tax revenue relative to the total economy as internet sales mostly are not taxed. Likewise the shift of consumer spending from goods to services that are not taxed in Virginia added to the decline. There are opportunities in the tax code to update its corporate tax system to reduce opportunities for tax avoidance, according to The Institute.
The usual method of balancing the budget by simply dividing revenue among programs will no longer work in Virginia as the pace of growth of needs has out-stripped the growth in revenue. Some programs and services will once again be left under-funded. Shifting costs to local governments for things like public education has been resorted to in recent years, but that is a well that has largely dried up.
Virginia is going to need to do a serious accounting of its unmet needs with the public and the legislature deciding what we are going to seriously fund and what needs will go unmet. As the federal government plays with reforming the national tax structure, it is past time for Virginia to get serious about our own tax reform.