The Institute on Taxation and Economic Policy (ITEP) and the Virginia Organizing Project (VOP) released a new report today showing that low and middle-income families in Virginia pay a far higher share of their income in state and local taxes than do the richest families in Virginia.
“Virginia lawmakers may be forced to make difficult tax and spending decisions in the upcoming year,” said Matthew Gardner, ITEP’s executive director and lead author of the study, titled Who Pays? A Distributional Analysis of the Tax System in Virginia. “They should be mindful that the Virginia tax system already falls most heavily on the very poorest families in the state.”
Virginia’s Tax Code: The Poor Pay More
When all Virginia taxes are totaled up, the study found that:
- Virginia families earning less than $19,000 — the poorest fifth of Virginia non-elderly taxpayers — pay 8.9 percent of their income in Virginia state and local taxes.
- Middle-income Virginia taxpayers — those earning between $36,000 and $59,000 — pay 8.8 percent of their income in Virginia state and local taxes.
- But the richest Virginia taxpayers — with average incomes of $1,557,700 — pay only 6.3 percent of their income in Virginia state and local taxes.
“No one would ever design an income tax with lower tax rates for the best-off taxpayers,” noted Gardner. “But that is exactly what Virginia’s tax system overall does: it allows the very wealthiest individuals to contribute less of their income, on average, than middle- and lower-income families must pay. In other words, Virginia has an unfair, regressive tax system.”
Virginia Sales, Excise, Property Taxes Hit Low-Income Families Hardest
The main reason for the unfairness of Virginia taxes is the state’s reliance on regressive sales and excise taxes, which fall disproportionately on the worst-off families, and on property taxes. The state’s one mildly progressive tax, the income tax — almost a flat tax — is not enough to offset the unfair impact of these other taxes.
“Virginia lawmakers have a straightforward strategy available for addressing its regressive tax structure. Relying more heavily on income taxes and less on regressive sales and excise taxes, while modernizing the state’s essentially flat income tax, would make the Virginia tax system much less unfair and also transform it into a true catalyst for economic development, investment, and jobs,” said Gardner.
The Virginia Organizing Project recommends reforming Virginia’s unfair, regressive tax system to better serve Virginia’s families as well as the state’s budget. “Virginia’s tax structure has not changed since 1926. Our regressive tax system is hitting working families hard. We cannot keep going like this. We all keep waiting for the wealth to ‘trickle down’ and it’s not happening. Where is it?” asked Denise Smith of the Virginia Organizing Project Tax Reform Committee.
“Meanwhile low and middle income people are struggling to get by in this economy while paying a higher percentage of overall taxes than the wealthiest people in the state. Tax percentages should be determined by ability to pay.”
With an ongoing state budget crisis, Virginia’s revenue system will continue to be a source of debate.
“With a larger-than-before anticipated revenue shortfall announced at yesterday’s legislative retreat in Richmond, we should make one thing crystal clear: sound tax reform, such as VOP recommends, will provide tangible benefits for all Virginians, “said David Shreve, of the Virginia Organizing Project Tax Reform Committee.
“This incisive analysis of Virginia’s tax structure reveals once again what citizens of the Commonwealth must recognize: that our current tax structure is unfair, is incapable of financing the needs of a modern state, and, owing to these characteristics, is also a significant source of economic drag.”
- Virginia Organizing Project
- Institute on Taxation and Economic Policy
- Who Pays? A Distributional Analysis of the Tax System in Virginia [PDF]
- View the Virginia Report [PDF]
