RICHMOND — Gov. Terry McAuliffe (D) announced Thursday that he would trim corporate taxes in his budget plan, a proposal that irked some liberal supporters and seemed designed to corner business-friendly Republicans.
McAuliffe says reducing the corporate income tax from 6 percent to 5.75 percent would make Virginia more competitive and help lure businesses to the state. During frequent international trade missions, he said, “the first question we always get is ‘What is your tax rate?’ ”
But some in the GOP say they expect the governor to pay for the cuts and more tax credits with money that the state would save if McAuliffe was able to expand Medicaid. The Republican-controlled legislature has consistently blocked McAuliffe’s efforts to insure 400,000 Virginians through the Affordable Care Act, which he says would save the state about $353 million over two years.
The latest strategy could put Republicans in the awkward spot of sacrificing a corporate goody in order to keep Medicaid expansion at bay.
McAuliffe declined to say how he would pay for the tax cuts or whether he would embed the potential Medicaid savings into the two-year budget proposal he will unveil Dec. 17.
“I’ll be honest with you: I don’t want to answer your question today because . . . the news today is what I’m proposing here today on tax issues,” he said during a forum hosted by the Associated Press and the Richmond Times-Dispatch.
The Virginia Chamber of Commerce applauded McAuliffe’s tax cut plan while the liberal-leaning Progress Virginia and the Commonwealth Institute called it a misplaced priority.
Del. S. Chris Jones (R-Suffolk), who chairs the House Appropriations Committee, warned McAuliffe against incorporating Medicaid into the budget but reserved judgment on the tax cut.
“Everything within the budget is a puzzle piece, and until we have all the pieces there is not much to say,” he said in a statement. “However, it would be unwise for the governor to predicate new spending or initiatives based on so-called savings from Medicaid expansion.”
Republicans have consistently stymied McAuliffe’s efforts to expand the federal health-care program for the disabled and poor since he took office almost two years ago. But the state’s hospitals association this week gave him a potential new path to expansion without using state dollars.
The Virginia Hospital & Healthcare Association reversed its long-standing aversion to new fees that could be used to draw down a federal match. That money would create a pool of funding that could be used to insure more Virginians.
“Arriving at this moment did not come easily,” VHHA President Sean T. Connaughton said in a letter to McAuliffe. Hospitals throughout the commonwealth and especially in rural areas have complained of a financial crunch exacerbated by their mandate to provide free or reduced-price care to indigent patients.
Yet depending on hospitals to finance Medicaid expansion appears to be a non-starter in the General Assembly.
“The skyrocketing cost of the current program, concerns over fraud and abuse, and the need for reforms to improve access for patients all argue against expansion,” House Speaker William J. Howell (R-Stafford) said. “The House understands that Obamacare has put immense pressure on hospitals, but doubling down on Obamacare’s Medicaid expansion is not the solution.”
McAuliffe said going that route was one option he would explore.
“There are very creative ways of how we can administer this so we don’t have to incur any state dollars at all,” he said.
Asked whether he has already contacted the federal government about securing special permission to set up such a program, McAuliffe touted his vast network built over decades of fundraising at the highest levels of national politics.
“I am in constant communication with most of the federal cabinet secretaries on a variety of different issues,” he said.
His budget will also seek to reduce by half the use of an accounting trick known as accelerated sales-tax collections. Highly unpopular with retailers, it requires certain merchants to prepay a portion of their July sales-tax remittance one month early.
In addition, he will call for a $15 million tax credit for companies spending more than $5 million on research and development, and a bigger tax credit for affluent individuals who provide capital for start-ups, known as angel investors. But the $64 million corporate tax cut could have the most lasting effect on the state’s economy.
Del. C. Todd Gilbert (R-Shenandoah) said he would oppose the tax cuts if they were “tied to [McAuliffe’s] unrelenting single-mindedness on this issue that’s proving across the country to be a bad move.”
But the governor’s spending plan is widely expected to use Medicaid expansion to indirectly bankroll more teachers and other items popular with the Democratic base.
His strategy of rolling out the tax plan ahead of the full document created an odd dynamic, with Republicans afraid to speak in favor of cuts that might be linked to Medicaid expansion and liberal Democrats upset by what they perceived as corporate welfare.
“Cutting taxes for corporations at the same time that we are laying off school staff and raising college tuition is not the way to build a strong middle class and a prosperous economy for Virginia,” said Michael Cassidy, president of the Commonwealth Institute. “This is a tax break for wealthy business owners and big profitable corporations.”