FAIR REVENUES FOR VIRGINIA’S FUTURE

MEG WIEHE

STATE TAX POLICY D IRECTORINSTI TUTE ON TAXATION AND ECONOMIC POLICY ( I TEP)

Inform + Engage Policy SummitThe Commonwealth Institute

Virginia’s Tax System is …

OutdatedOutdated

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Lowest 20%

Second 20%

Middle 20%

Fourth 20%

Next 15% Next 4% Top 1%0%

2%

4%

6%

8%

10% 9.0%8.6% 8.5% 8.1%

7.1%6.8%

5.0%

1.1%2.5% 3.3% 3.7%

3.9% 4.2%

4.2%

5.2%1.9% 1.2%

0.5%

1.8%

Property Taxes Sales & Excise Taxes Income TaxesTotal Effective Tax Rate

Who Pays Taxes in Virginia?

Ideas to Fix Virginia’s Broken Tax System

• Broaden the base of the personal income tax , strengthen progressive rate structure and enact refundable credits to offset sales and property taxes paid by low-income families.

• Broaden the base of the sales tax to capture a greater share of economic activity

• Close corporate tax loopholes and review tax-code spending

Virginia's Outdated Tax Brackets Subject Far More Taxpayers to Top Income Tax Rate Than in Previous Years

1990 20140%

20%

40%

60%

80%

100%

38%

63%

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Tax Rate—$ 3,000$ 2%

3,001$ 5,000$ 3%5,001$ 17,000$ 5%

17,001$ and more 5.75%

Tax Bracket

More Progressive Rate Structure

Tax Rate—$ 3,000$ 2%

3,001$ 5,000$ 3%5,001$ 17,000$ 5%

17,001$ 50,000$ 5.5%50,001$ 200,000$ 6%

200,001$ and more 6.5%

Tax Bracket Less than 2% of taxpayers would pay the Top Rate under this proposed rate structure which on its own would raise more than $200m.

Impact of Current EITC

Low 20% 2nd 20% Mid 20% 4th 20% Next 15% Next 4% Top 1%0%

2%

4%

6%

8%

10%

9.0%8.6% 8.5%

8.1%

7.1%6.8%

5.0%

9.1% 8.9%8.6%

Tax Distribution without current EITC

Current Tax Distribution

Impact of Making VA’s EITC Refundable

Low 20% 2nd 20% Mid 20% 4th 20% Next 15% Next 4% Top 1%0%

2%

4%

6%

8%

10%

7.8%8.3% 8.5%

8.1%

7.1%6.8%

5.0%

↓1.1%↓0.3%

Tax Offset by Expanded EITC

New Tax Distribution after expanded EITC