Tuesday, January 12, 2016

McAuliffe's Plan to Cut Corporate Taxes

The following is a post by Mike Thompson, President of the Thomas Jefferson Institute for Public Policy:

"Governor McAuliffe has proposed a quarter of one percent cut in the corporate income tax rate (from 6% to 5.75%) in order to grow our economy and be more competitive to North Carolina and other states that have recently reduced taxes. Tax reform is indeed key to economic growth, but the ¼ of one percent cut that the Governor has suggested will have a minimal impact on economic growth.

North Carolina, whose economy is growing much more rapidly than Virginia's, is on the road to a 3% corporate tax rate so a 5.75% corporate tax rate is not competitive. But North Carolina has no BPOL (gross receipts) or Machine and Tool (M&T) tax and these two taxes, both of which we have in Virginia, are a greater hindrance to economic growth than is the corporate income tax.

A tax cut should be aimed at economic growth. A quarter of one percent cut in the corporate tax rate has next to no impact on job creation in our state.

The Jefferson Institute ran Governor McAuliffe's tax cut proposal through our dynamic tax model. This unique State Tax and Modeling Program (STAMP) is a comprehensive model of the Virginia economy, designed to capture the principal effects of state tax changes. It has been vetted at legislative commission meetings and used in previous tax cut/tax increase debates in the General Assembly.

The Governor's corporate tax cut of ¼ of one percent is not the way to grow our economy. Here are the facts:

The cost of a ¼ of 1% corporate income tax cut is about $32 million a year or $64 million over a two year state budget.
A total of only 280 jobs will be created from this proposed tax cut over five years.

Yet, there is a plan that will create tens of thousands of net new jobs and this plan is revenue neutral.

The proposed Tax Restructuring idea is one that the Thomas Jefferson Institute has promoted with the Virginia Manufacturers Association, Virginia NFIB and the Virginia Retailer Federation and is revenue neutral while creating tens of thousands of jobs over five years.
This Tax Restructuring proposal eliminates the impact of the BPOL and M&T taxes while not effecting county/city budgets (the counties are kept "whole" with this plan), costs the state budget nothing since it is revenue neutral, and creates tens of thousands of jobs.
A detailed copy of the tax restructuring study can be found by clicking here. A letter to 2015 candidates for Delegate and Senate, signed by the four organizations backing restructuring, can be found by clicking here.

If true economic growth is the goal, then the Governor's minimal corporate income tax is not the answer. Indeed, our STAMP Model shows that even reducing our corporate income tax to meet the 3% tax in North Carolina will only create 3,400 additional jobs in five years. When compared to true tax restructuring that can create tens of thousands of new jobs, the Governor's proposal is meager at best.

The corporate income tax cut proposed by Governor McAuliffe is not the way to true economic growth here in Virginia."

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