Tax Reform

Gov. Northam’s Inaugural Address: Light on Details but Open to Suggestions

Virginia’s newly elected Governor Ralph Northam delivered his inaugural address on January 13th. Despite the governor’s history of supporting new and higher taxes, the governor refrained from making a direct appeal for either in his address. Rather than promote specific policies, Gov. Northam outlined a decision framework of commitments for his tenure. Given the narrow Republican control of both the House and Senate, Gov. Northam’s stated acknowledgment that “no one has a monopoly on good ideas” will, hopefully, prevent the executive derailments that have plagued states like Connecticut.

Between 2012 and 2017, Virginia fell from 3rd to 11th place in economic outlook, according to the Rich States, Poor States ALEC-Laffer State Economic Competitiveness Index. This ranking utilizes 15 variables associated with economic growth such as top marginal income tax rates, public employment as a percentage of total population, and tax expenditure limits. The decline was partly due to other states engaging in economic reforms at a faster rate than Virginia, but also due to an increase in the top marginal corporate income tax rate.

After increasing the top marginal corporate income tax rate in 2012, the state dropped from 15th lowest to 27th in just one year. According to OECD research, taxes such as this—including the estate tax and a progressive personal income tax—are more harmful relative to consumption or property-based taxes. In other words, corporate income taxes stunt growth more than the sales or property taxes. Additionally, the corporate income tax appears to harm rates of entrepreneurship, a vital rung in the economic ladder for immigrants and lower SES households.

States compete with each other for both capital and labor. In a similar manner, countries compete as well. For instance, until December, our country stood still on tax policy for thirty years while the rest of the world steadily transformed theirs based on OECD research. The inversions, deferred repatriation, and limited reinvestment which harmed our national economy is mirrored on the state level as well, with businesses large and small fleeing states like Connecticut. Similarly, Virginia is facing interregional, interstate and international competition for the new businesses, jobs, and innovations that will drive growth.

Less than a three-hour drive on the I-95 South, North Carolina promises a far more hospitable economic climate. North Carolina has taken Virginia’s position, ranking 3rd on the Rich States, Poor States ALEC-Laffer State Economic Competitiveness Index. The results speak for themselves; North Carolina has experienced higher GDP growth,  more domestic migration and more non-farm payroll employment than Virginia. Economic opportunity flowed to the geography of least policy resistance.

If Gov. Northam is truly willing to explore alternative perspectives, reforming Virginia’s tax structure and modernizing the states regulatory code should be high on his list. These changes would promote economic growth— and thus “do the most good for the most Virginians.”

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

+ Tax Reform In Depth