The voices of Tax Policy Center's researchers and staff
Taxes are front and center in the only two gubernatorial races this year. The Virginia campaign centers on the Republican candidate’s individual income tax cut promises. While New Jersey’s matchup is a classic contest between a Republican pledging to cut taxes and a Democrat vowing to raise them.
Like congressional Republicans, the GOP candidates in Virginia and New Jersey are betting that tax cuts will help them navigate difficult political headwinds. Their success could boost GOP tax cut efforts in Congress, while their failure could suggest that tax relief will have limited appeal in the 2018 congressional races.
However, while tax policy matters in both races, it probably takes a back seat to two big personalities, neither on the ballot. The Virginia race is increasingly focused on President Trump and the New Jersey contest is as much a referendum on unpopular (and term-limited) Gov. Chris Christie as it is on the candidates who would replace him.
Still, taxes are a top issue for Virginia’s Republican candidate Ed Gillespie (even if his paid advertisements focus on more controversial topics). Gillespie wants a 10 percent cut across Virginia’s four tax rates, dropping the state’s top rate—beginning at $17,000 of taxable income—from 5.75 percent to 5.15 percent.
Gillespie says the cuts would deliver “nearly $1,300 per year back into the pockets of a family of four.” But the direct effect of those rate reductions would be much smaller for most Virginians. A household making $50,000 would only see about a $200 tax cut. Only those earning well above $200,000 would see their taxes cut $1,300.
So where does that $1,300 for a middle-income family come from? Gillespie argues that lower rates would attract businesses and investment to Virginia, and those new jobs and investments would generate higher wages for middle-class families.
Sound familiar? It should because it’s roughly the same argument the Trump administration and congressional Republicans are making about their proposed corporate tax cuts. And like Trump’s argument, it’s problematic. There’s no evidence tax cuts alone drive state economic growth. And it would be especially tough in Virginia, which already has a lower top tax rate than all its neighbors, except North Carolina where the rates are roughly equal.
To Gillespie’s credit, his plan has two features not included in national tax proposals. It does not create a special “pass-through” rate (what doomed Kansas), and it calls for tax “triggers” which, when used correctly, can avert budget problems (Gillespie doesn’t describe the triggers in his plan and instead says the secretary of finance would design them).
Gillespie’s Democratic opponent, Ralph Northam, does not have a tax plan. The tax page on his website only calls for ending Virginia’s sales tax on grocery food. Northam would also create a bipartisan tax commission, which could either be a way of skirting the issue or, if he puts in the work, a good way to jumpstart reform.
In New Jersey, Republican Kim Guadagno is promising property tax relief. She would limit the school portion of the tax to 5 percent of household income, what’s known as a “circuit breaker” program. But despite her focus, and her Democratic opponent Phil Murphy mostly avoiding the issue, New Jersey voters are split on which candidate would better handle property taxes. Some New Jersey politicos believe voters have stopped listening because Christie did not deliver on similar promises.
Guadagno has also had little success attacking Murphy’s proposed $1.3 billion tax increase. He’d create a new bracket for incomes above $1 million and increase the top tax rate from 8.97 to 10.75 percent, a plan Christie vetoed five times. Murphy also proposed legalizing and taxing marijuana, something Christie has vehemently opposed.
The national political parties always draw lessons from off-year elections. With the tax debate consuming Washington, many will look for clues in Virginia and New Jersey for how far promises of tax relief will take candidates in next year’s midterms.
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