As a certified public accountant, I have spent my career dealing with intricate tax policy. I understand how complicated it is.
That’s why, when the Northam administration learned that federal tax changes would result in impacts to Virginia taxpayers, we knew we needed to make choices based on solid accounting and research, not on-the-fly guesses or political rhetoric.
During Gov. Ralph Northam’s first General Assembly session in office, we worked to get our fiscal house in order, putting a record amount of money into our reserve funds and ultimately preserving our AAA bond rating.
Meanwhile, President Trump’s tax policy changes are driving this year’s federal deficit to nearly a trillion dollars, and the federal debt to $21 trillion.
Here in Virginia, we must balance our budget every year, and we have a duty to do so responsibly.
Going forward, we’re looking at smart investments that will build our economy and support our workforce.
After analyzing a data-driven model to weigh the ramifications of the federal tax changes, we have a much better understanding of who will benefit from those changes, and who will not.
More than half of Virginia taxpayers make $54,000 a year or less in adjusted gross income. In almost every community in Virginia, they are the middle class — our private sector workers, our small businesses, our teachers, our law enforcement officers.
But while those earning less than $54,000 a year are the majority of our taxpayers, they only reap 7 percent of the tax benefits from the federal changes.
That’s why Governor Northam’s plan focuses on helping those who make under $54,000 a year, by making our existing Earned Income Tax Credit (EITC) refundable.
The EITC, started under President Gerald Ford and expanded under President Ronald Reagan, is already refundable at the federal level and in most of the 29 states that use it. People must be working and earning money to qualify for it, and making it refundable simply means that 600,000 eligible Virginians, tens of thousands of whom are veterans, get their full tax benefit.
As has been well-documented, wage growth has largely been offset due to inflation, and that hurts working families the most. This additional money will go back into the economy, helping spur investment.
It’s important to note that Virginia has done nothing to create additional revenues, and our administration has suggested no legislation to raise state taxes. These tax changes are a result of federal law. But if these federal tax changes are going to increase Virginia revenues, Governor Northam wants to use that money to help the people who won’t see much benefit.
For decades, Virginia law has required that taxpayers make the same choice about deductions for both their state and their federal taxes — so if you itemize for one, you must itemize for the other.
When families sit down at their computer or with their accountant to do their federal and state taxes, they make the choices that give them the best net benefit.
They’ll still do that.
Since Governor Northam announced his plan to invest in and help middle class families, it has become clear that some people either don’t understand it or are willfully mischaracterizing it.
Last Sunday’s editorial in The Times-Dispatch was misleading. It presented a hypothetical situation that was atypical, and did not properly account for the appropriate tax treatment for student loan interest, the existing disallowance of the itemized deduction for state income taxes, or the spousal tax adjustment on the Virginia return, resulting in a much higher Virginia tax liability than what would actually exist. Such hypothetical scenarios often fail to accurately compute the tax effects on real Virginia taxpayers.
The editorial focused heavily on one particular provision of the federal tax changes: the expansion of the standard deduction at the federal level. However, not all Virginia taxpayers are impacted by this particular change. In fact, fewer than 19 percent of households in the $50,000 to $100,000 income range — the range cited in the editorial — would be affected. On average, they’ll pay $93 in additional state taxes — not $700 as suggested by the editorial — and their combined federal and state taxes will be $1,011 less. That’s money that stays in their pockets.
These deductions and changes are all interrelated. Ignoring the interplay between various provisions results in misleading generalizations.
You don’t have to take my word for it — anyone is free to go check our calculations. The Northam administration took the time to analyze tax data specific to Virginians, and developed an interactive model to more accurately predict the impacts of federal tax changes on Virginia taxpayers. For the full report on the impact of federal tax reform to Virginians, go to www.finance.virginia.gov in “Joint Money Committee Presentations” under “Key Documents.”
As a CPA, I think it is critical that we use data-driven models, derived specifically from Virginia taxpayers’ actual tax returns as opposed to anecdotal information and political rhetoric, to understand the impact of federal tax changes. Reviewing data tailored in this way is the soundest path to understanding the implications of those changes on approximately 3.7 million state tax returns filed by Virginians.
We welcome a discussion of how to best help the Virginians who need it the most. But we also believe tax policy changes should be balanced. By working through an existing tax credit that’s focused on working, middle class families, we can ensure that Virginians at all income levels feel the benefit of a changing tax climate.