Senators Claim “Voodoo Estimating” in Battle Over Tax Cuts

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Not only are the leading Virginia Senate budget negotiators adamantly opposed to providing Virginians with additional tax relief in this election year, but they are now hinting at partial roll back of one of the major individual tax reforms approved just last year.

When the 2022 General Assembly approved a major increase in the standard deduction used by most Virginia taxpayers, it applied a condition — that the underlying General Fund revenue had to continue to grow at least 5% in both fiscal years 2022 and 2023.  If it did not, the standard deduction for that year would be reduced again.  The revenue growth would be adjusted for the tax cuts, so the target was 5% growth before the revenue reductions those caused.

Meeting that trigger target for FY 2022 was easy in that year’s overheated economy.  Last week Governor Glenn Youngkin’s administration certified that the second target was also met, meaning the full standard deduction also applies for this tax year.  The goal was barely met, with growth of 5.1%, leading Democrats to accuse the Department of Taxation of “voodoo estimating.”

The accusation against the usually trusted tax staff was reported in a Richmond Times-Dispatch article.    It failed to address whether the Democrats plan to act on their suspicions, but why complain otherwise?  If they fight to certify the target was missed, and win, the standard deduction for a married couple filing jointly will drop by $1,000 and their tax bill rise $58.  A key Democrat dismissed it as “less than $30” but that is for an individual.

Yes, Virginia, this argument has gotten so petty some legislators are considering trying to claw back a $58 tax break to couples still dealing with the crushing inflation crisis.  Of course, the argument is not really about last year’s tax cut but the continuing stalemate over doing it again.  The state ended the fiscal year June 30 with billions in cash not dedicated to any purpose, and Youngkin and the House of Delegates want more tax relief.

The certification on meeting the standard deduction revenue target came in a July 25 letter to leading budget negotiators.  It reported that all the various tax changes made in 2022 ended up saving taxpayers (some prefer to say “costing the government”) over $2.5 billion in just one year.  Almost $1.4 billion of that represented lower personal income taxes, with the higher standard deduction accounting for $1 billion of that amount.

The accounting includes almost $1.1 billion that was passed out to taxpayers as individual rebates.  Whether or not that counts as a “tax policy adjustment” is highly debatable.  That was basically a spending item with a one-time impact and had zero impact on revenue.  In truth, it boosted revenue because it is safe to assume most taxpayers promptly spent it on some taxable item or service.

Remove that rebate from the calculation and the 2023 revenue growth target was easily met.  Another round of rebates is also being proposed as a response to the current cash surplus.  One-time rebates have become a bipartisan dodge used by legislators embarrassed by the state’s flush treasury but opposed to long term tax cuts.

What really upsets some legislators is how effectively Youngkin is rolling back the many and varied tax increases imposed by former Governor Ralph Northam when he enjoyed total partisan control of the legislature in 2020 and 2021.  You can see the impact by looking back at previous General Fund revenue results.

Remember, The General Fund is mainly income and sales taxes paid by both individuals and businesses, with a few smaller revenue streams thrown in.  Federal grants, transportation taxes, and college and hospital operating costs are accounted for as Non-General Funds in a different pot.  The Northam tax increases exploded the General Fund.  (He raised transportation taxes too, but that is not part of this discussion.)

For fiscal year 2020, before any of those tax changes passed, the state’s General Fund total was $21.7 billion.  A year later, in 2021, it hit $24.9 billion.  Another year and more tax increases later, it reached the recent peak of $28.9 billion.  The General Fund grew by one-third in two years despite the COVID pandemic and its related recession. How?  Tax increases.

According to the July 25 report from the Department of Taxation, absent the tax policy changes and the rebate the General Fund total would have been $30.4 billion for fiscal year 2023, another increase.  But with the tax policy changes and the rebate, the figure is now expected to be $27.9 billion.  The tax cuts prevented any increase in the General Fund collections from 2022 to 2023.

But the state’s bills have been paid with cash left over.  The amount collected in the past 12 months – after the Youngkin tax cuts — remained almost 28% higher than three years previously, before the wave of Northam tax increases.  Had there been no Youngkin tax cuts and no one-time rebate, the $30.4 billion in General Fund for the past 12 months would have represented a 40% increase in just three years.

The fear of recession that the spending advocates used to block tax cuts during the regular session has abated.  There is every reason to expect the General Fund to continue to grow even if some additional tax cuts are approved.  The voters need to be clearly asked which they prefer: additional tax cuts coupled with substantial growth in spending, or an even higher uptick in spending with no relief to the taxpayer.

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A New Tax Reform Plan? Explain It and Sell It!

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The following paragraph was written five months ago.  It is reproduced now with some emphasis added.

The 2023 Virginia General Assembly tax debate is just another revival of an old political show. Last year it ended well for new Governor Glenn Youngkin (R) and for those hoping to pay less in state taxes. This year is not guaranteed to see the same outcome, not unless there is a late push to engage public attention as the House and Senate seek compromise.

Was there a push in intervening months to engage public attention?  No. Does the public even understand what tax policies are being proposed, and how those changes provide dollars they need for family necessities?  Again, no, and an emphatic no because Republicans have changed their approach since the negotiations started months ago.

So should anybody be surprised that the opponents of any tax changes – the keep it all and spend it all crowd – are happy to stand their ground and view it a safe political position?  No.

Virginia has now entered the second year of its two-year budget cycle, and the Republican-controlled House and Democratic-controlled Senate are still deadlocked over about $3.6 billion in revenue that is not allocated, some of which started accumulating years ago.  Soon, end of fiscal year reports will give a more exact figure for the cash sitting on the table of this poker game. Expect a higher number.

The latest round of negotiations collapsed, according to news accounts, because the lead Republican negotiator thought he had a quiet agreement with leading Democratic negotiators. But what he thought was in their agreement (according to news reports) was very different than the first package, leaving out the original plan to lower the corporate income tax by 1% and to lower the top individual rate by a quarter of a percent.

The good news is the tax reform elements still on the table remain substantial, close to $1 billion, reasonably close to the dollar values attached to the original mix of proposals. Even better news was how the dollars shifted from a corporate income tax cut to more tax relief for individuals, and tax relief more targeted to middle and lower income households. It looks very familiar.

The best news of all, the compromise proposes increasing the standard deduction and raising the trigger threshold for the top rate to a higher income, both basically responses to inflation. Indexing the tax code to inflation would be the best approach, but these are effective steps in the same direction.

But here in the aftermath of the latest blowup, it is still unclear exactly what the Republicans had put on the table in their compromise. Details are lacking. If they had the Department of Taxation or the legislative staff run some financial impact estimates, none have been released or shared. They have made no effort to tell the average Virginian, “Your tax cut would be this much.”

The advice to turn the insider game of budget negotiations into a public campaign to promote tax cuts – either the previous package or this new one – was not taken.  Instead, various Republicans thought it prudent to stand by quietly while their buddies in the other party suffered through hot primaries. The foolishness of that tactic has now been demonstrated.

Here is lesson one from a life in politics. This isn’t from a Viking Cruises commercial but from every campaign manual out there. The only commodity you cannot get more of is time. Five months of time that could have been spent making this case to Virginians is lost. Voting begins in three months, and there still is zero messaging, zero effort at communicating to Virginians in concrete detail what they might gain from tax reform.

If there is a new plan, a better plan, put it out there with as much detail as possible and make the spending advocates explain why they think it is bad. Why are they happy that inflation is making government rich while families struggle with the basics? Why do they want that to continue forever?

Since the Governor’s package first appeared, its opponents have disparaged it as tax cuts for rich corporations and the richest Virginians. The Democrats never mention how cutting that top rate helped everyone with more than $17,000 in taxable income. Those attacks are not applicable to the new package that is apparently on the table, but all the voters will be shown are the January roll calls with Republicans voting to…cut taxes on corporations and cut the top rate paid by millionaires.

A special session would allow legislators to go on record on some different plan, one not including those two elements, one more focused on the middle. Those roll calls could be produced as responses to the attacks which are coming. Again, if anybody wants anything like that to actually pass, the time to go public with details is long past.

The spending side of the debate needs attention, too. If not, the voters will think that one side was all about tax cuts, and the other all about spending on vital services, services also popular with Republicans and Independents. The House of Delegates budget and tax package applied far more of the $3.6 billion to spending than to tax relief.

Does anybody have those details?  Are there talking points that highlight the House or Governor’s spending priorities that would accompany the tax cuts? In seeking information from those who should be involved in feeding facts into this debate, in framing such a message, one was advised to go visit the union- and liberal-funded Commonwealth Institute for Fiscal Analysis. That’s where the Republicans go for facts, apparently.

In the sound of silence, one thing can be heard:  tick, tick, tick.

Posted in State Government, Taxes | Comments Off on A New Tax Reform Plan? Explain It and Sell It!

Destroying the Commonwealth in Order to Save it

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Members of the General Assembly who voted for a  bill in 2021 mandating that new vehicles sold in Virginia must be all-electric by 2035 forgot to do the math to show exactly how that would work in real life.

As the Thomas Jefferson Institute for Public Policy noted in February when we unsuccessfully made the case for repeal of this ill-advised legislation, the commonwealth simply does not have the technological capacity to make such a massive switch from internal combustion engines in such a short period of time.

Replacing the energy stored in one pound of oil takes 15 pounds of lithium battery.  To mine the materials found in the typical 1,000 car battery will mean mining and processing about 250 tons of rock and dirt.

Nobody told Virginians that the level of subsurface mining required to manufacture the millions of new batteries required to store electricity generated by wind, solar and other “renewable” energy sources will dwarf current production levels, scarring the earth.

Consider our planet — including Virginia, which has deposits of copper, manganese and zinc — pockmarked with ten times the number of current mines, resembling craters on the moon. This in a state that won’t even allow an underground natural gas pipeline to be built.

Turns out, going all-electric will require an astonishingly high amount of digging, according to Dr. Simon Michaux, University of Queensland Associate Professor of Mineral Processing and Geometalurgy.  He is apparently one of the only people in the world to actually do the calculations.

In an August 2022 seminar available on YouTube, Prof. Michaux explained that a 1,000-page study he did for the Geological Survey of Finland stated that “the quantity of metal required to make just one generation of tech units to replace fossil fuels is much larger than first thought. Current mining production of these metals is not even close to meeting demand. Current reported mineral reserves are also not enough in size. Exploration for more at required volumes will be difficult.”

“There was no long-range planning at all,” Michaux noted. “The European Commission, bless their cotton socks, would actually make a prediction like they wanted a 100 percent system replacement by 2030 …It’s not going to happen.”

That’s because in the headlong rush to completely phase out fossil fuels, no one bothered to answer one basic question: “What quantity of minerals will be needed to do this?” Especially since as recently as 2018, “84.5 percent of global primary energy consumption was fossil fuel based and less than one percent of the vehicle fleet was electric.”

Since there are not a sufficient number of e-vehicles to recycle needed materials such as copper, lithium, nickel, manganese, cobalt, and graphite, “the first generation will have to be sourced from mining,” he explained.

The amount of additional electricity worldwide needed to power industry and the entire transportation sector that currently runs on oil and gas comes to 36,007 trillion kilowatt hours (TWh). To generate that amount, the world would need 586,032 new non-fossil fuel power plants – or more than ten times the existing number (46,423 in 2018), which includes a four-week buffer to even out highly intermittent wind and solar power.

So imagine ten times more power plants in Virginia in addition to hundreds of new mines. And we’re still not finished.

Giant batteries will be needed to store the power to meet increased demand, such as those used in Elon Musk’s highly touted Hornsdale Power Reserve in Australia. But the “elephant in the room,” as Prof. Michaux put it, is that there would have to be 15,635,478 Hornsdale-size plants built just to store this non-fossil fuel generated power.

And some of those battery storage facilities would of necessity have to be built in Virginia. Perhaps in your county.

Even if everybody is on board with this, there are still non-negotiable physical limitations, according to Prof. Michaux. The total amount of metals needed to manufacture just the first generation of all-electric vehicles and the components of the corresponding power stations is enormous. For example, based on global metals production rates in 2019, it would take more than 9,000 years to mine enough lithium worldwide for all the lithium-ion batteries that would be needed.

Here’s the timeline for other tech metals needed to replace fossil fuel:

Copper: 189.1 years

Nickel: 400.2 years

Lithium: 9,920.7 years

Cobalt: 1,733 years

Graphite: 3,287.9 years

Silicon: 5.9 years

Vanadium: 7,101.2 years

(And we won’t even mention the rare earth metal germanium, which would take 29,113 years to produce enough for first-generation batteries at the current levels.)

Even worse, “global reserves as stated at the moment [are] less than 5 percent of what we need” to create just one generation of fossil-free infrastructure.

In practical terms, that means an explosion of exploration and mining over the next two decades to produce the same amount of metals that humans have extracted from the earth since 4,000 BC – and that’s if such large deposits can even be found, which is problematic because unlike iron ore or aluminum, rare earth metals are usually not found in bulk quantities.

“The idea that we’re going to do this in seven or eight years is very amusing,” Prof. Michaux says.

It’s also very scary. In 2035 under current law, Virginians won’t be able to buy a gas-powered car and there won’t be the quantity of minerals available to manufacture enough electric ones. Meanwhile, tens of thousands of acres of Virginia countryside will be covered by hundreds of new mines, industrial-sized solar farms, windmill arrays, and massive battery installations.

Sounds a lot like destroying the Commonwealth in order to save it.

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Virginia hits highest labor force participation rate in a decade; Unemployment Decreases

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Work isn’t just about a paycheck. At its core, work is about freedom, accomplishment, respect, human dignity, and even companionship.  Work gives purpose and is essential to a thriving community, and thriving communities are essential to a thriving state.  That is why it is not surprising to see Gov. Youngkin focus so intently on creating a job-friendly economy.  In August of last year, the Governor announced and began implementing dramatic changes in the Commonwealth’s workforce development efforts.  Friday’s employment numbers for May show that his efforts are paying off.

The May data from the Bureau of Labor Statistics shows that Virginia is one of only eleven states reporting lower unemployment last month and one of only seventeen states showing lower unemployment over the last twelve months.  Equally as important, labor force participation rates went up — meaning people who had given up looking for work have re-entered the job market.  This is the highest rate in almost a decade.

Finally, and most impressively, over the last twelve months job growth occurred in ten of eleven industry sectors and in all ten metropolitan areas in Virginia (known as Metropolitan Statistical Areas or MSAs).  It is important to note that the Richmond MSA, which includes Petersburg, had the highest percentage gains in employment over the last year.  It would seem the Governor’s “Partnership for Petersburg,” where he has focused his administration on forty-two initiatives and public-private partnerships in this struggling community south of Richmond, is starting to show results.

The only red flags in the latest numbers are the continued increases in state government jobs and in industries dependent on the government like education.

Also, the decline in mining and logging was fairly substantial.

While the Thomas Jefferson Institute doesn’t espouse the idea that governments or Governors “create” jobs, we do believe that lower taxes, reduced regulations, and safe communities create the environment for businesses to be created and to grow.  This appears to be the Youngkin way.

With the budget still undecideda $3 billion-plus budget surplus on the tablegeneral revenue running well ahead of forecasts and a likely revenue-filled June yet to come — we hope the Governor can use these job numbers to convince the legislature to continue to cut taxes and regulations and to get more low tax members elected.

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Clean Virginia’s Victory Bad News for Energy Consumers

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Renewable energy donor Clean Virginia Fund was the biggest winner in Tuesday’s primaries, going head to head against Dominion Energy Virginia in several nomination contests and often winning.  Senior incumbent Democrats with strong Green New Deal voting records went down to defeat, because good wasn’t good enough.

Come Election Day in November, the contrast between Democrats and Republicans on Virginia’s energy future will be as stark as possible.  Quite simply, the use of natural gas within the Commonwealth is on the ballot.  Dominion’s recent announcement that it plans a new gas generation facility in Chesterfield County to bolster electricity reliability only poured fuel on the fire (pardon the pun.)

The Charlottesville based Clean Virginia, which now also engages in lobbying and intervenes in State Corporation Commission regulatory matters, is funded by Michael Bills. His wife Sonjia Smith has a similar pattern for donations, but does not give through the political action committee. So far in this election cycle, with the fall elections still to come, Clean Virginia Fund and Smith combined have donated $7.3 million, more than 99% of it to Democrats.

Dominion is not far behind at $6.9 million donated so far in this cycle, but only $3.2 million of it has been to Democrats.  Many of them lost Tuesday to opponents backed by Clean Virginia.  They included Fairfax Senator George Barker ($230,000) and Richmond’s Joe Morrissey ($140,000.)  A late donation to a House of Delegates challenger in Virginia Beach, Susan Hippen ($110,000), also apparently was in vain.

One major Democrat incumbent who lost Tuesday, Senator Chap Peterson of Fairfax, received substantial support from Clean Virginia and no funding from Dominion this cycle.   But Smith covered that bet with a $30,000 donation of her own to Petersen’s opponent, Saddam Salim, and any question who had the greener credentials was settled by $1,000 to Salim from Jane Fonda.  Smith was Salim’s biggest donor.

In a Prince William County senate district with no incumbent and little chance for a Republican, Clean Virginia and Smith donated $783,000 to winner Jennifer Carroll Foy, who had served in the House.  Dominion’s $225,000 made it the largest donor to her failed opponent, Hala Ayala, also a former House member.

The ongoing fight between Dominion and Clean Virginia is not good news for energy consumers.  Dominion and Clean Virginia are not always on opposite sides. When they do agree, consumers usually lose.

Dominion remains deeply committed to (and committed to making its ratepayers pay for) massive offshore wind installations and thousands more Virginia acres covered with solar panels.  It was a shock to the wind and solar industrial complex when Dominion changed direction in its latest integrated resource plan and called for decades of continued reliance on natural gas to back up those intermittent energy sources. But the big bucks are still going to wind and solar.

The utility and the activist group are further apart on regulatory matters, and Clean Virginia was a key player in forcing Dominion into a compromise during the 2023 session that included several pro-consumer elements.  But the biggest regulatory problem in Virginia remains the General Assembly’s demands that Virginia charge toward an energy future with absolutely no use of any fossil fuels.

Neither Clean Virginia nor Dominion would favor those decisions now being made somewhere else, outside of the General Assembly’s tight grip.  That is why both are spending millions, with millions more to come, to buy influence over the men and women who will vote in the next session in January 2024.

What issues might that General Assembly address?

Should the Green Left control at least one chamber, forget about the past efforts to:

Decouple Virginia from the California Air Resources Board’s regulations on clean cars, which will force dealers to sell more and more electric vehicles until all gasoline engines are prohibited by 2035.

Prevent Virginia’s local governments from adopting their own local prohibitions on the use of natural gas in homes and businesses.  Charlottesville and Richmond run local gas utilities, both are considering closing them, and if they are shut down gas use would also be prevented in surrounding jurisdictions tied into the same systems.

Further amend the 2020 Virginia Clean Economy Act or repeal the statutory mandates to eliminate fossil fuel use in other areas of the economy, not just the production of electricity.  Under current law agriculture and construction are in the crosshairs, too.

Should the Clean Virginia help Democrats take full control in both chambers, what is likely to happen?

That Dominion plan to keep and expand its natural gas fleet would be in jeopardy.  For the remainder of his term Governor Glenn Youngkin could probably protect it, but the next governor might not.

Instead, expect a more watertight legislative mandate and aggressive schedule to end the use of coal, natural gas and perhaps biomass to make electricity.

Localities seeking to expand their own powers to ban disfavored energy sources would have the Assembly as an ally, not a roadblock.

If still vulnerable to state meddling, both the Mountain Valley Pipeline in Western Virginia and the pending expansion of the natural gas pipelines feeding more gas into Hampton Roads would face greater pressure.

The California Air Board has gone far, far beyond trying to eliminate internal combustion engines in cars and light trucks.  If dictated by legislation, Virginia could also copy California’s efforts to force all-electric power tools, commercial trucks and even railroad locomotives.

If Youngkin overcomes the court challenge to removing Virginia from the Regional Greenhouse Gas Initiative, and ending the carbon tax it imposes, opponents of reliable and affordable energy will pass new bills to reinstate the tax as soon as legally possible.  Again, Youngkin might be able to hold that off, but it will confront the next governor.

The Dominion versus Clean Virginia contest over the loyalty of Democrats is a fascinating cage match.  Neither is fighting for the average Virginia consumer who wants inexpensive, reliable energy from a broad variety of sources and totally independent regulation.

Steve Haner is Senior Fellow with the Thomas Jefferson Institute for Public Policy.  He may be reached at [email protected].

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