The Shiv for Virginia’s Middle Class

The Richmond Times-Dispatch commentary section has launched an all-out assault on Governor Ralph Northam’s proposal to recycle about half of the $500 million windfall from federal tax reform into tax benefits for the non-income tax-paying poor. (Steve Haner gave an excellent preview of the issue on Bacon’s Rebellion a week ago.)

To Northam’s way of thinking, federal tax reform primarily benefits higher-income Americans. He wants to use about half of the windfall — lower federal tax deductions would mean higher taxes for Virginians unless the Commonwealth changes its tax code to conform with the federal law — to benefit lower-income workers by increasing payments under the Earned Income Tax Credit. The balance would increase “investments” in broadband and workforce development.

The great thing for Northam is that he doesn’t have to lift a finger. The General Assembly needs to enact legislation to make the federal law tax-neutral for Virginia taxpayers. Good luck with that. There is no way the legislature, divided almost 50/50 between Dems and Republicans, can pass a bill that would survive a veto.

I’m not happy about this development, and neither is the Times-Dispatch editorial staff. Today’s Commentary page includes:

  • An op-ed by Michael Thompson, president of the Thomas Jefferson Institute for Public Policy. The implicit state tax increase resulting from non-action, he says, will claw back about 20% of the benefits of the federal tax cut.
  • An op-ed by Nicole Riley, Virginia state director of the NFIB, the nation’s leading small business association. The state tax increase would disproportionately impact Virginia’s small-business job creators, she says.
  • The lead editorial in the Commentary section. Far from hitting “the wealthy,” as claimed by Democrats, Northam’s proposal could cost middle-class families as much as $750 a year in state taxes.

I can’t add much to these columns other than a little perspective. Northam’s plan to stick the middle class must be viewed in the larger context of public policy in Virginia.

First, Virginia just enacted the expansion of Medicaid to benefit the near-poor (which has a large overlap with the individuals who would get more money from EITC). Virginia’s 10% share of that expansion will be borne largely by the general taxpayer — in other words, the middle class.

Second, Virginia’s institutions of higher education have been relentlessly increasing college tuition, fees, room and board over the past two decades, thus making the main ticket to a middle-class career and life increasingly unaffordable. While boards of trustees have increased their financial aid, most assistance goes to the poor and near poor. The middle class gets little or nothing.

Don’t pay attention to what the politicians say. Pay attention to what they do. Here in Virginia, the politicians are full of soothing words to the middle class even as they sink in the shiv.