Column – Be bold in overhauling state’s individual income tax system

Published 4:26 pm Friday, November 18, 2022

Virginia’s income tax brackets have always shocked me, especially because of their glaring lack of fairness.

When I was a newspaper columnist in South Hampton Roads, I eventually earned in the upper five figures annually. That placed me into the same category as someone who made just over $17,000 a year.

We both paid an income tax rate of 5.75%.

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That dichotomy was crazy. It didn’t represent even a whiff of equity. The brackets are based on taxable income.

Why didn’t I shoulder a heavier burden? Why didn’t folks earning much less keep more of their desperately needed cash – and render unto Caesar a smaller percentage?

I bring this up because the state’s Joint Legislative Audit and Review Commission released a report recently about making the income tax system fairer – and saner. My Virginia Mercury colleague Graham Moomaw reported on the antiquated brackets and JLARC’s recommendations to the General Assembly.

The Assembly directed JLARC to study increasing the “progressivity” of the individual income tax system. That means taxing people according to their ability to pay, instead of setting the same tax rates for the rich and the poor or taxing the poor disproportionately.

Income taxes account for 70% of the state’s general fund revenue, so they’re the main source for spending.

The report noted the Assembly, thankfully, already had changed two components of income tax this year to make it more progressive. The legislature nearly doubled the standard deduction, and it made the state earned income tax credit partly refundable.

Good.

The problem is the Assembly hasn’t altered the state’s four tax brackets since 1990. That practically begs claims of neglect against our legislators.

Virginia’s median income has risen 108% since then, “but income taxes owed by a single filer with median income increased 173%,” JLARC said.

At a minimum, the state could update the tax brackets to account for inflation.

The third-highest bracket now, for instance, covers folks earning just $5,001 to $17,000, and the highest has everybody above $17,000. Why someone earning six or seven figures annually is lumped in with a person making less than even $20,000 is mind-boggling.

“Thirty-two years ago, you were considered rich at $17,000 and hit the top tax bracket,” a delegate said earlier this year at a legislative hearing.

I don’t know of anywhere in America in 1990 that $17,000 was considered “rich” – especially not in Northern Virginia or Hampton Roads. That certainly wasn’t the case in Detroit, either, where I was living at the time.

Comments like the delegate’s make me ponder about the discernment process of the Honorables in Richmond. But I digress.

There’s been pushback from parts of the state Capitol on some of JLARC’s proposals, including possibly raising taxes on the rich. The report says that move would increase progressivity and state revenue, but Gov. Glenn Youngkin and the GOP-controlled House of Delegates prefer broad tax cuts (of course) rather than tax increases.

Youngkin and other pro-business leaders say lower taxes would help the commonwealth compete with North Carolina and other Southern states. They should be careful not to ignite a race to the bottom, where the quality of life could suffer just to lure companies to relocate here.

The state already approved $4 billion in tax cuts this year, though Youngkin wanted to go further. Before making additional tax cuts, legislators should tell Virginians exactly how they would deal with the reduced revenue.

The state’s dismal performance in fully funding its own Standards of Quality, for example, is a sore spot with educators and localities. It’s a perennial problem. Virginia also ranks 41st in state per-pupil spending, according to an analysis by The Commonwealth Institute for Fiscal Analysis released in 2021.

Virginia’s legislators should create tax brackets that account for the inflation that’s occurred over the past few decades. Six brackets, instead of four, should be debated. A 10% rate for the state’s millionaires must not be out of the question, either.

What the Assembly shouldn’t do is continue to treat someone on the low end of the income scale like someone making tens of thousands more. That’s indefensible.

Longtime columnist and editorial writer Roger Chesley worked at the (Newport News) Daily Press and The (Norfolk) Virginian-Pilot from 1997 through 2018. He previously worked at newspapers in Cherry Hill, N.J., and Detroit. Reach him at rchesley@virginiamercury.com