Word came out of Richmond recently that leading members of the General Assembly may initiate reform of Virginia’s tax structure next year, following the November state elections.
Good on both counts. Good to get reform going; good to get a mandate first. Without an electoral push, it could be challenging — and it may still be after the vote. Expect much wailing and complaining.
But it’s decades overdue.
Ever reluctant to amend and adjust state income tax brackets, lawmakers effectively turned Virginia’s barely graduated income tax effectively into a flat tax. Earn a whopping annual $17,001 and you land in the top bracket of 5.75%.
In the overall scheme of paying for state government, how important is the income tax?
Big-time. State income taxes represent the commonwealth’s greatest source (70%) of revenue.
First adopted in 1843, the Virginia levy on income makes it “one of the oldest, continuously functioning state income taxes in the nation.”
Attribute that little piece of history to the late John Knapp, who labored long and conscientiously at the University of Virginia, recording and evaluating Virginia’s particular, often peculiar habits of financial governance.
Knapp always presented his findings fairly and objectively. But you could always pick up little indicators that he thought Virginia a bit ridiculous when it came to shaping its tax structure.
It got ridiculous because it was always dangerous — politically dangerous — to even raise the subject. Just say the word “reform” and you could count on the ever-present opposition to throw what used to be called a “conniption fit.”
That’s roughly when the steam rises, your head explodes and you lose all reasoning capacity.
Right from the start, Virginians essentially preferred not to tax themselves at all and, even when they did, administered tax laws indifferently.
Knapp would point out that, yes, we had a graduated income tax on the books from early on, but for most of the 19th century, the state income tax was administered by elected local assessors and, for the sake of remaining in office, they treaded lightly.
Besides that, there was no system to confirm and document reported incomes.
Only when Gov. Harry Byrd took office in 1926 — he was a reformist when it came to state management — did the income tax began to take modern form, with three graduated brackets and a state-employed, full-time tax commissioner.
Not that it stayed modern very long, you understand. There was too much of a downside. After Gov. Bill Tuck managed to modestly increase the tax in 1948, in keeping with the state’s rapid post-World War II growth, it immediately earned him the sobriquet of “High-Tax Tuck.”
The next big change came in 1972, when the Virginia income tax was brought into compliance with the federal income tax and another bracket was added.
Then things stalled again. Knapp wrote in 1983 that while the federal income tax structure was steadily being liberalized with exemptions and deductions, Virginia declined to follow suit.
What are the principal considerations of getting this right?
Fairness, for starters, and economic efficiency. You can go too far either way. Overcook income taxes and you potentially make Virginia a less attractive place to live and run a business. But the burden for funding services should be shouldered equitably.
There’s hope for the effort to be comprehensive. All aspects of the tax will be examined, reports say, with the intent to match tax law to the existing economy (as opposed to the one that existed generations ago).
Accordingly, a special joint subcommittee will be formed, the Joint Legislative Audit and Review Commission will be deployed, hearings will be held and off we go.
Senate Finance Chairwoman Janet Howell and House Finance Chairwoman Vivian Watts — Fairfax County Democrats both — will lead the charge and the work may extend into 2023.
Good. Take enough time to get this done right — all in the hope that it gets done at all.
