September 7, 2010

The 2010-11 Virginia

Budget Crisis:A Balanced

Solution

1

Virginia FY2010-11 Budget:

General Fund Revenue Side

Other Taxes & Revenue

Corporate Income Tax

9%

5%

Source: http://dpb.virginia.gov/budget/08-10/revenue.cfm, Virginia Dept. of Planning and Budget

Individual Income Tax

Sales & Use Taxes

Includes: •Public Utilities Taxes •Insurance Premium Taxes

66%

20%

2

This revenue is based on economic forecasts and subject to change.

Virginia FY2010-11 Budget:

General Fund Spending Side

Education

Public Safety

Health & Human Resources

General Government

Source: http://dpb.virginia.gov/budget/budget.cfm, Virginia Dept. of Planning and Budget

42%

27%

11%

14%

Other:•Commerce•Transportation•General Assembly•Courts•Technology•Natural Resources

6%

Includes:•Administration•Finance•Executive Offices•Central Appropriations

3

Cuts To the State Budget Since the Recession Began

Source: The Commonwealth Institute, www.thecommonwealthinstitute.org 4

Fiscal Year Billions of $ in Cuts

2008 .8822009 1.9262010 4.0662011 4.2692012 4.501

Total for period= $15.644

Because of the failing economy, former Governor Kaine, current Governor McDonnell, and the Virginia General Assembly have been forced to cut over $15 billion from the state’s General Fund.

How Did the 2010 General Assembly Close Its Budget

Shortfall?

Source: Commonwealth Institute Analysis of the 2010 Acts of Assembly Chapter 874, 2008 Acts of Assembly Chapter 879, and ARRA Reports 5

The General Assembly raised about $270 million in new revenue, but cut over $4.5 billion from the budget in Education, Health, Human Services and other programs.

Who Is Hurt by the Deep Budget Cuts?

Everyone.

Source: http://dpb.virginia.gov/forms/20090908-1/Reductions2010.PDF

Public Colleges & Universities

K-12 Educatio

n

Public Safety

Medicaid

Mental Health Treatment

Centers

Libraries

At-Risk Youth & Families

Conservation & Recreation

6

Percent of Income Paid in State and Local Taxes

in Virginia

Source: Institute on Taxation & Economic Policy, Who Pays, November 2009

For non-elderly taxpayers in 2007, middle and low-income Virginia families have a higher tax responsibility

than wealthy families. 9%

1%

2%

3%

4%

5%

6%

7%

8%

8.8%8.4% 8.4%

7.9%

6.9%6.6%

5.2%

Lowest20%

Top1%

Next4%

Next15%

Fourth20%

Middle20%

Second20%

Income Level

Perc

ent o

f In

com

e

7

Source: Institute on Taxation & Economic Policy, Who Pays, November 2009

This chart compares the real dollars paid in taxes

with the income left over for Virginia families.$90,000

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Lowest20%

Top1%

Next4%

Next15%

Fourth20%

Middle20%

Second20%

Income Level

Dol

lar

s

8

Line goes half-way through next page

Line goes through NEXT 8 PAGES

$977

$10,

122

$2,2

51$2

4,54

9

$3,8

89$4

2,41

1

$6,1

38$7

1,56

2

$9,5

57

$19,

846

$280

,854

$81,

000

$1.5

mill

ion

Dollars Paid and Dollars Left Over by Income

Quintile

$128

,943

Reviewing the Key Points

• Virginia has already made large cuts in our budget in response to the economic crash.

• On the other hand, Virginia has raised very little new revenue to help close the budget shortfall.

• Virginia’s wealthiest citizens have a lower tax responsibility than those in the middle and working class.

9

Conclusions

• The 2011 Virginia General Assembly should make reasonable tax increases instead of further cutting an already damaged budget.

• For fairness’ sake, we should raise taxes on the Virginians most able to pay and with the least current tax responsibility, those higher on our income scale.

10

What You Can Do

• Contact your state Senator and Delegate and tell them how you think they should solve this year’s budget problem.

• Write a Letter to the Editor of your local paper about raising new revenue and fair taxes.

• Talk to friends, family and other organizations about fair tax reform as a budget solution for Virginia.

11

The National Tax Fight of 2010

The budget battles of the federal government directly impact1. our national priorities like healthcare and jobs, and2. funding for critical state services like transportation and education.

www.virginia-organizing.org www.responsibletaxes.org

Principles: 1. Allow the 2001 and 2003 tax breaks for the

wealthiest Americans to expire this year as scheduled.

2. Ward off billions in new tax cuts for the very rich by maintaining a strong federal estate tax.

3. Eliminate tax loopholes for big corporations and the very wealthy, and hold Wall Street accountable.

www.virginia-organizing.org www.responsibletaxes.org

The Frame for our Message:• Government action is vital to our economy,

but it doesn’t come for free.

• We must take our responsibilities to our great nation seriously. Tax increases must be on the table if we are going to live up to our obligations.

• The wealthiest Americans and corporations have been getting a free ride for years through excessive tax cuts, tax breaks, and tax loopholes.

• Middle-class Americans pay their fair share to keep the country strong; those at the top should pay theirs as well.

www.virginia-organizing.org www.responsibletaxes.org

Legislative Opportunities to Advance Our Principles in 2010:

• Expiring Bush-Era Tax Cuts – House, Senate action likely this fall.Bush tax cuts expire this year – we support making tax relief for working families permanent while allowing tax breaks for the wealthiest 2% of taxpayers to expire on schedule

• Estate Tax – expired at the end of 2009. Should be reinstated and retained at 2009 levels. Could be part of middle class tax bill. Weakening amendments possible.

• Cutting tax loopholes – tax havens for the super-rich, corporations sending profits off-shore, oil industry subsidies, a reduced tax rate for Hedge Fund managers. The list goes on!

www.virginia-organizing.org www.responsibletaxes.org

When you meet with your Congressperson or Senator ask

them for two things:

• Vote to end the Bush Era Tax Cuts for the wealthiest while protecting middle-class tax relief

• Please support reinstating a strong and permanent estate tax

www.virginia-organizing.org www.responsibletaxes.org

Appendix

1) Sample Letters to the Editor, p. 18

2) Resources for Tax and Budget Work, p.19

3) Description of Main State and Local Taxes, p. 20

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Sample Letters to the EditorLet’s say my boss at work gives me a new project that would make our business run more

efficiently and smoothly when it is finished. We’ll be able to serve our customers better, pay our workers fairly, and make some money for our investors.

But my boss only gives me half the money I need to accomplish the project. After cutting corners, working with untrained and insufficient staff, and scrounging through jury-rigged fixes, I finally throw up my hands and tell her that I’ve failed. The project is a bust. She yells at me and tells me I’m a bad manager and I get passed over for promotions in the future.

Our government has projects it has to accomplish: education, defense, public safety, financial regulation, maintaining our road system, etc. These are not optional. No one else will take care of it. There is no doubt that big organizations waste some money and have to be kept on a tight leash, but after we cut enough of the government’s budget, it can’t do its job anymore.

That’s where we sit now in the state of Virginia. We have to cut more money from the state budget this year after $7 billion in cuts over the last two years. We can’t cut anymore without dooming critical projects to failure. Like transportation.

Raise some new money, Virginia. It is the fiscally responsible thing to do.

I’m a hard-working taxpayer from Virginia. I want my state government to manage our money well. I also want it do a good job on the work we’ve assigned to it. I want schools to teach our children, I want decent roads that aren’t clogged up all the time, I want to feel safe in my home and community, and I want people who are out of work to get the help they occasionally need.

I’m willing to pay what it costs for the state of Virginia to do these things. I don’t want my community falling to pieces because some stingy politician wants to take a bunch of short-cuts. If that means I have to pay a little more in taxes, I’m OK with that!

But please don’t raise taxes on the people who already can’t put food on the table; that is just digging their deep hole a little deeper, and we’ll all pay for that in the end. Ask a bit more from people like me who can afford to chip in.

Virginia has already made large cuts in our state budget in response to the economic crash. We have cut over $7 billion in the last two years. We probably face another round of cuts in the 2011 General Assembly.

At the same time, we Virginia’s wealthiest citizens have a lower tax responsibility than those in the middle and working class. As a percent of their income, people who make $500 thousand a year pay only 5.2 percent of their income in state and local taxes. People on the bottom pay 8.8 percent of theirs.

The 2011 Virginia General Assembly should make reasonable tax increases instead of further cutting an already damaged budget. And for fairness sake, we should raise taxes on the Virginians most able to pay and with the least current tax responsibility: those at the top of the income scale.

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Resources for Tax and Budget

•Institute for Tax and Economic Policy, www.itepnet.orgA national non-profit that has the amazing ability to analyze how tax responsibility falls

across income, from lowest to highest.

•Center on Budget and Policy Priorities, www.cbpp.orgA national think-tank producing excellent policy papers on economics for both national

and state issues.

•Virginia Department of Budget and Planning, dpb.virginia.gov

•United for a Fair Economy, www.faireconomy.orgA progressive organization in Boston working toward economic equality on all fronts

nationally. They are experts in popular education and were fundamental in putting together VOP’s first tax workshop in 2003, from which this document flows.

•The Commonwealth Institute, www.thecommonwealthinstitute.orgThis is our own, Virginia-based organization that does fiscal analysis on Virginia’s

economy, its budget, and its tax system.

•Citizens for Tax Justice, www.ctj.orgA font of wisdom on tax and budget policy on the state and national level.

•Economic Policy Institute, www.epi.orgA national think-tank producing excellent policy papers on economics for both national

and state issues.

•Virginia Department of Taxation, www.tax.virginia.gov

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Description of State and Local Taxes

Income Tax Everyone who makes money in Virginia from their job or retirement, or from Virginia sources such as a business or rental property, owes tax on that income. The amount of tax owed depends on how much money is made. Most people pay their taxes through withholding. Withholding is where a certain amount of money is taken out of your paycheck, and sent to the Department of Taxation to satisfy the amount of tax you owe to Virginia.

Sometimes people owe more taxes than is withheld from their checks. Also, people who have income from something other than a job (or retirement) won’t have withholding on their income. These people should file something known as Estimated Tax.

Many people end up paying too much tax through withholding or estimated tax; some folks end up not paying enough. This is because there are many other things that can affect your liability (how much you owe) which aren’t clear when you get your check.

Nobody wants anyone to pay more tax than they actually owe. Therefore, every year, everyone who makes money in Virginia or from Virginia sources has to file an income tax return. The return helps fill in the blanks, and calculate what your actual tax liability is. If you ended up paying too much tax during the year, when you file the return, we’ll send you a refund. If you end up owing more tax, you’ll pay it with your return.

Corporate Income Tax It isn’t just individual people who owe taxes on their income. Corporations pay income tax, too, and their rate is a little bit higher than individual rates.

Sales Tax You pay another type of tax when you buy most things. This is called Sales Tax. Whenever you buy anything, an additional amount is tacked on to the price to cover the tax. For example, if you buy something for $10, the amount you actually pay is $10.50. That 50 cents is the tax on that sale. The store owner collects the tax, then sends it to the state of Virginia. For most things, the sales tax rate is 5 percent of the purchase price; for groceries, it is 2.5 percent.

Local Taxes In addition to the taxes administered by the Department of Taxation, many people owe taxes to their locality (county or city.) These can include Real Estate Tax (tax on houses and land), Personal Property Tax (tax on things like cars, boats, etc.), Meals Tax (additional tax on meals purchased at restaurants), etc.

Source: Virginia Dept of Taxation, www.tax.virginia.gov20