Virginia to consider new income tax structures

These “progressive” plans aim to redistribute wealth in the state – but could lead to a net loss of revenue.

A report – “Options to Make Virginia’s Individual Income Tax More Progressive” – has been presented to Virginia legislators, and some are ready to consider it seriously in the upcoming session. “There’s no question in my mind that this is gonna be a topic we’re gonna wrestle with during the upcoming regular session,” said Senator Janet Howell (D-Reston).

The options include different ways to raise taxes on the top 10 percent of earners in Virginia – especially the top 1 percent. This is a move that could drive the tax base out of the state, leading to a loss of revenue.

Migration data shows that Americans tax structures play a large role in the states people choose to leave – and those that they choose to move to. Research organization The Tax Foundation found that:

“Several of the states losing higher-income taxpayers, especially New York, California, and New Jersey, have highly progressive tax codes under which tax liability rises steeply with income. States that structure their tax codes in this manner have consistently lost higher-income residents to lower-tax states, and not only the residents, but also any associated tax revenue and entrepreneurial activity that goes along with them.”

Where do those people move? To states with less punitive tax structures.

“Of the 10 states that experienced the largest gains in income taxpayers, five do not levy individual income taxes on wage or salary income at all, and two others had top marginal individual income tax rates that were below the national median at the time. Recently, those states have grown even more competitive. Nine of the top 10 states either forgo individual income taxes on wage and salary income, have a flat income tax, or are moving to a flat income tax.”

The data makes it clear that these “progressive” income tax plans will often achieve the result opposite to the one intended by driving high earners out of the state and reducing the tax base.