This announcement has made some headlines. Vince Haley is running for the Virginia 12th District Senate seat being vacated by the retiring Walter Stosch. It is a bit ironic that Haley is running for the seat from which Stosch pushed so many tax hikes it is hard to remember or tally them up on a platform to eliminate the State Income Tax altogether.
That is a bold play for a young man who has spent the last several years learning and working for Newt Gingrich. You remember Newt don’t ‘cha? Watch this classic moment from the 2012 Presidential Debate series for a reminder.
You can’t hang around a guy like Newt Gingrich for years without picking up some of his pluck. And there isn’t a Republican on this planet that didn’t think John King, CNN and the whole left wing media didn’t deserve the flogging Newt laid on King that night, 2 days before the South Carolina primary.
But Newt is Newt and Vince Hailey is Vince Haley. But all I can say is Haley had a damn good mentor.
But now we turn to the proposal by Haley to eliminate Virginia’s state income tax. And outside of the establishment political class, Democrat or Republican, you are going to be hard pressed to find anyone who doesn’t love this idea.
And I have to admit, I wasn’t aware that there were now 9 states who do not have a state income tax. I knew about Alaska. All that oil revenue pretty much eliminates the need to tax citizens in this sparsely populated state. So they are in sort of a class by themselves. They even pay residents to live there. So I would say they are an exception.
But then there are Florida and Texas. I knew about those two because I used to work for a company that had it’s World Headquarters in the Dallas area and the Service Headquarters in Florida. The pay scale was the same for the rest of us, but I was open to moving to either place for the instant pay increase.
And Nevada has no income tax. Gambling taxes pay the bills.
But what are the rest of the states? I had to look it up.
South Dakota, Washington, Wyoming, New Hampshire and Tennessee. That’s nine. Note that New Hampshire and Tennessee DO tax interest and dividends.
I figured that those states made it up with a high state sales tax. Alaska has no sales tax. Neither does New Hampshire. And Wyoming and South Dakota come in at 4%, still below Virginia’s 5.3%. The rest are between 6% and 7%. Some have local taxes, but Virginia has the new NoVa tax and Tidewater tax, so depending on where you live, you may already pay more sales tax and an income tax than the 9 states that eliminated the income tax.
And I have heard along the line somewhere that if Virginia eliminated the exemptions and deductions, corporate welfare and other goodies designed to effect behavior, or in other words be a nanny, we could drop the income tax rate down to 1.5% if everyone paid it on a flat tax basis.
Kenric Ward over at Watchdog.org wrote:
Vince Haley wants to abolish Virginia’s income taxes. And he’s running for state Senate on that pledge.
Seeking to stand out in a four-way GOP race to succeed retiring Sen. Walter Stosch, Haley says Virginia’s tax regime is hobbling the state’s economy.
“Since 2004, we have had three enormous tax increases … due in part to too many Republicans not holding the line,” says the candidate from Henrico County.
Despite the tax hikes – or because of them — Virginia’s per-capita debt has swelled from $210 in 1957 to $8,354.
Haley vows to reverse the trend. He proposes to cap state spending and use the generated surpluses to lower tax rates, with the ultimate goal of phasing out the state’s income taxes (individual, corporate and capital gains taxes).
No other Republican candidate in the Central Virginia race is on record calling for those kinds of cuts. And Haley says his mantra is resonating across the political spectrum.
“My message unifies Republicans and many Democrats who would be perfectly happy not paying income taxes,” Haley told Watchdog.org in an interview.
Virginia revenue records since 1961 show the state’s increasingly regressive income tax has reached a point of diminishing returns. Collections averaged an 8.8 annual percent gain over the past 54 years, but only averaged 4.6 percent in the past decade.
Haley, a lawyer and longtime policy aide to Newt Gingrich, points to nine states with no income tax. Led by Florida and Texas, they have prospered while Virginia’s business climate has chilled. Because the state won’t even adjust its personal income tax brackets for inflation, residents earning just $14,000 a year are pushed into the top tax tier (5.75 percent).
“Non-income tax states are where businesses are being created and where Americans want to live. It only stands to reason that we should have more of them,” Phil Kerpen, president of the nonprofit American Commitment, told US News & World Report.
Other states, including neighboring North Carolina, are moving to ratchet down income taxes. Haley wants Virginia to be the first mid-Atlantic state to go all the way.
“Higher taxes have hurt the Virginia economy and slowed the historic annual growth in revenues,” he says. That creates a treadmill effect of smaller revenue growth leading to higher taxes and debt.
But can we actually eliminate the state income tax? I’m a small government Conservative but I readily admit that there are functions, constitutional ones, that the State has to perform. Necessary functions. And I know we waste a LOT of money in the state budget. It has become bloated and lined with pork. And every year the budget digs deeper in our pockets and chips away at our freedom a bit more with every dollar we pay.
But is Vince Haley crazy? Can we stop this revenue stream and still keep the necessary functions of state government running?
Well, as I already wrote, despite the top bracket of 5.75% (which kicks in at only $14,000) all we should have to pay is 1.5%. Deductions and exemptions are fun, but they are nothing more than redistribution of wealth.
But I was burned by Bob McDonnell. Remember his promise to privatize the Alcoholic Beverage Stores? Get the state out of the liquor business? Just after the election he abandoned that idea in favor of a massive tax hike. McDonnell betrayed those of us who worked so hard to get him elected. And that was before he became Robert “The Rolex Governor” McDonnell.
So, not so fast Vince. No offense, but I’m gonna crunch some numbers this time. McDonnell said “oops”. “It didn’t work out like I thought,” when he abandoned the ABC idea.
So let’s have a look at what we have here in this proposal.
The first thing I did was go back to 1961 and look at the population of Virginia from then until now. In 1961 we had 4,095,000 people living in the Commonwealth and our budget was, well, I don’t know what the budget was. That information wasn’t readily available until 1995. And some of that wasn’t easy to come by. But I did find the revenue numbers both raw and adjusted for inflation. And what we had in 1961 was revenue of $1,305,078,458.00 which means we were spending about $318.00 on every person in the state. In 1995 we had 6.7 million folks living in Virginia and we were bringing in $9,1 million dollars and the budget was $16.7 million. And we were spending $1,359.31 per person (these numbers are adjusted for inflation). A 400% increase. And last year there were 8.3 million of us who gave the government $15.7 billion dollars and the government turned around and spent $1,890.75 on each of us. And lest you think the government was getting efficient on us here because in 20 years the per person expenditure only went up $500, consider that the budget is $43.3 billion. So they are spending roughly 3 times what we bring in to the general revenue fund.
But as I crunched these numbers and made some graphs
I know that image is a bit hard to see but it should look better if you click on it. But basically, there is a green line that is in the center of the graph running the length of the graph. That is the percentage of population growth and it is nearly a straight line ranging from 1% to 2% per year since 1961. The other two lines – blue and orange – represent general revenue and per capita spending. It rather looks like a roller coaster but the spending and the income follow the same pattern. In essence, whatever money we manage to take into the general fund, we spend it. All of it. The more we have the more we spend. And when we don’t have, and there are several negative years there, we don’t spend as much. Apparently, we are perfectly capable of doing with less when we have to, but we will spend every dime when we can. No matter how much or how little.
This graph should be a little easier to see. The top red line is our state budget since 1995. The bottom blue line is the income into our general fund during the same time period. Each horizontal line shows a $20 billion increase. And as you can see, the revenue – blue – line has been pretty steady. We are talking billions, in 20 years there is not a significant uptick. The budget, however, tells a different story. It is increasing at an alarming rate. Now much of that is increase is actually federal money (as if money comes from the feds, I know, right). And a lot of that is Medicaid.
But what I can see is that the general revenue is a smaller and smaller part of our overall spending. That is the place our income taxes land.
So I think Vince Haley is on to something here. If we can eliminate the corporate and individual income taxes we will bring in more businesses and they will pay salaries. We will all have more disposable income because the government will not be taking a chunk of our pay. Most of that money will be spent, new businesses will bring in even more money, which will be spent. And the sales tax will rise as we spend more money. And the general revenue fund will benefit.
Besides, the first graph shows that Virginia is quite capable of adjusting to rises and falls in the general revenue stream. And if we take in less money, we simply spend less. And the second graph shows that this spending funded by income tax is a smaller and smaller portion of the budget anyway.
And besides, we can always tweak the sales tax rate, although with Walter Stosch gone that is a steeper climb.
But I believe that Vince Haley is correct in asserting we can phase out the income tax, attract more businesses and easily make up the difference with more money in circulation.
And I think that anyone who doubts this is either a big government proponent or unable to do the math.
Tom’s Truth-o-Meter rates this claim as TRUE.