Liberal think tank says Cuccinelli tax plan gives nearly half its benefit to top 5 percent

September 23, 2013

A liberal think tank’s analysis of Ken Cuccinelli II’s economic plan for Virginia says the Republican gubernatorial candidate would cut a $1.4 billion hole in the state’s budget to shave $6,391 off a millionaire’s tax bill, all at a time when the state economy seems less able to withstand such a blow.

The tax proposal would also put another $985 in Cuccinelli’s own pocket, based on his 2012 salary as attorney general, the report says. That’s 10 times higher than the average tax break a middle-class family would receive, the group says.

The analysis by the Center for American Progress Action Fund treads similar ground covered by other critics of Cuccinelli’s tax plan but also examines his proposal in the context of recently increasing stress on the commonwealth’s economy.

The report says slow post-recession growth and federal budget cuts have left the state in a vulnerable position that could be weakened further by Cuccinelli’s approach. The group argues that the proposal resembles ideas put forward by Republican presidential candidate Mitt Romney.

“We don’t want this Romney-like budget that’s very clear-cut about giving tax breaks to the richest – to the top five percent,” said Tom Perriello, the think tank’s president and chief executive.

Perriello said Cuccinelli’s plan would potentially jeopardize other investments while giving 47 percent of the tax cut’s proceeds to the top 5 percent of Virginians. The Commonwealth Institute, in examining Cuccinelli’s plan, has also said nearly 40 percent of Virginia taxpayers would receive no reduction in taxes under Cuccinelli’s plan, and the rest would realize minor savings.

“Virginia has really worked hard for more than a decade to establish itself as a pro-growth, pro-family state,” said Perriello, a former U.S. representative from the Charlottesville area who considered running for governor but decided to back Democratic nominee Terry McAuliffe.

Cuccinelli’s campaign dismissed the think tank’s report as driven more by politics than economics.

“The study is fundamentally flawed because it was conducted by partisan Democrats and vocal McAuliffe supporters who stand to benefit personally and politically by his election,” Cuccinelli campaign spokesman Richard T. Cullen said in an email. “I’m surprised they didn’t use Terry’s campaign logo as a header. Beyond that, the methodology itself is deeply flawed.”

Cuccinelli wants to hold state budget growth to the rate of inflation plus population growth, cut the corporate income tax rate from 6 percent to 4 percent and reduce the individual income tax rate from 5.75 percent to 5 percent over the next four years. When fully implemented, the cuts would reduce state revenue by about $1.4 billion a year. Cuccinelli has said the lost revenue would be made up by eliminating tax breaks and loopholes. His plan is built around several consecutive budget surpluses, and it ties the tax code to inflation. But he has also not identified the specific tax breaks he would eliminate.

An analysis by the conservative Thomas Jefferson Institute for Public Policy said Cuccinelli’s plan would generate approximately 58,000 new jobs. The Commonwealth Institute has said Virginia loses $12.5 billion a year in tax revenues because of tax incentives designed to promote special interests.

The report from the Center for American Progress argues that Cuccinelli’s plan would represent a dramatic departure from Virginia’s moderate approach to budgeting and tax policy. It is also based on a similar assumption made by other Cuccinelli critics — namely that he would cut tax rates without finding matching savings through tax breaks for favored projects and industries.

“We are talking about cutting another $1.4 billion from Virginia’s revenue stream. Where is that going to come from?” co-author Anna Chu said Saturday in an interview. “That is the classic trickle-down economics that has been advocated by a lot of conservatives for a long, long time.”

Cuccinelli has said he would identify those cuts through a special commission and the legislative process. The Center for American Progress notes that the Virginia General Assembly has proven incapable of reforming the tax code and even increased tax expenditures for favored businesses by 30 percent in recent years.

Both candidates have proposed reducing or eliminating three taxes that benefit local governments — the Business Professional Occupational License tax (BPOL); the machinery and tools tax; and the merchants’ capital tax — but neither has offered a plan to make up the revenue.

Polls show McAuliffe and Cuccinelli running neck-and-neck in a Virginia governor’s race with 44 days to go before the Nov. 5 election.

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