It’s a remarkable thing to see somebody propose $2.3 billion in state and local tax cuts in a single press conference, with absolutely no ideas for paying for them. That’s exactly what Virginia’s Attorney General, Ken Cuccinelli, recently did at a Richmond yogurt shop as part of his campaign to become his state’s next governor.
Under Cuccinelli’s 163-word plan, a commission would be appointed to identify any “loopholes that promote crony capitalism,” and the savings from eliminating those loopholes would be funneled toward cuts in the state corporate income tax and three local business taxes. The single largest component of Cuccinelli’s tax plan, however, is eliminating the state’s top personal income tax bracket. This change would lower Virginia’s top rate from 5.75 to 5.0 percent, and would dramatically flatten the state’s income tax structure; for example, the new top rate would kick-in at taxable income of just $5,000.
Our partner organization, the Institute on Taxation and Economic Policy (ITEP), recently analyzed the personal income tax cut in the Attorney General’s plan in a report just published by the Virginia-based Commonwealth Institute. Unsurprisingly, ITEP found that this flattening of the income tax would overwhelmingly benefit Virginia’s most affluent residents, even as Virginia’s wealthiest taxpayers already pay far less of their income in state and local taxes than their less well-off neighbors. More specifically, ITEP found that:
- Almost 4 in 10 Virginians (39 percent) would see no change in their income tax bill.
- Lower and moderate income families are the groups least likely to benefit from this cut: nobody among the poorest 20 percent of Virginia families would receive a tax cut, and only half of all families among the next 20 percent would see their taxes reduced.
- In fact, the Cuccinelli plan runs the risk of actually raising taxes on a significant number of Virginians because “loopholes” of the non-crony-capitalism kind that benefit moderate income families would likely have to be scaled-back or eliminated to pay for the larger rate cut.
- Among the middle 20 percent of taxpayers, a majority (71 percent) would see their state income taxes fall, but by an average of just $98 per year.
- The state’s wealthiest taxpayers would receive the largest tax benefits by far. Three-fourths (76 percent) of the benefits from repealing Virginia’s top personal income tax bracket would go to the wealthiest 20 percent of households. The top 1 percent of earners alone would take home a full 27 percent of the benefits, for an average state tax cut of over $8,000 per household.