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Del. David Englin says Virginia’s tax code is "nonsensical" and in need of reform.
In a Jan. 20 news release, the Alexandria Democrat said the code is fraught with exemptions and inefficient formulas for taxing gas, machinery and business receipts. And Englin said the state income tax is inequitable.
"A cashier earning $20,000 per year pays the same (Virginia) income tax rate as a hedge fund manager earning $20 million a year," he said.
Would that cashier and that multi-millionaire really shell out an equal percentage of their earnings in state income taxes? We checked.
Englin backed his statement by pointing to a state law that applies a 5.75 percent levy on all taxable income over $17,000.
But does that mean the hedge fund manager earning $20 million annually and the cashier earning one-thousandth of that amount would pay the same tax rate? The answer is no.
That’s because everyone who pays Virginia income tax gets to claim certain deductions and exemptions. Joel Davison, a spokesman for the Virginia Department of Taxation, said those reductions would shrink our cashier’s income below the top threshold.
Let’s take the example that would offer the fewest state tax advantages to our cashier: He or she is single, has $20,000 in wages with no other income or federal deductions. The worker could claim a $930 state personal exemption and a $3,000 standard deduction for a single tax filer, leaving him or her with $16,070 in Virginia taxable income.
That means the cashier falls short of the $17,000 threshold for entry into Virginia’s top income tax rate of 5.75 percent, Davison said.
The highest rate the worker would pay on any portion of his or her income would be 5 percent.
Any other scenario would further reduce the cashier’s Virginia taxable income. Our worker, for example, could receive a $930 exemption for each dependent child. If the cashier is over 65, her or she would be entitled to a $12,000 deduction.
To be fair, there is a scenario under which the hedge fund manager would owe no taxes in Virginia. For example, he or she could have cataclysmic business losses or multiple tax credits could lower the tax liability to zero. But Davison pointed out that such occurrences would be "unlikely."
Englin made a mistake in the wording of his statement by focusing on the cashier’s gross pay.
He told us in an email that he was referring to the rate on "Virginia taxable income" and that he was assuming, for the sake of argument, the cashier and the hedge fund manager had no deductions or credits.
But this creates a new wrinkle. Even a cashier with taxable income of $20,000 would pay a lower overall rate than a multi-millionaire hedge fund manager.
That’s because the first $17,000 of all Virginians’ taxable income is assessed below the top rate. Virginia imposes a levy of 2 percent on the first $3,000 of taxable income, then 3 percent on the next $2,000, and 5 percent on taxable earnings from $5,000 to $17,000.
So the cashier with $20,000 in taxable earnings would pay the top 5.75 percent levy on the last $3,000 of that money, but lower rates on the rest.
Overall, a person with $20,000 in Virginia taxable income would pay a "blended" tax rate of 4.5 percent, according to Ryan Losi, executive vice president at the Piascik and Associates accounting firm in Richmond.
We also ran the numbers on the overall rate someone would pay if he or she had $30,000 in taxable income. It would be 4.9 percent.
That would still be below the roughly 5.75 percent levy the hedge fund manager would pay on his or her $20 million income, since all but a minute portion of the earnings would be taxed at the top rate.
Englin said a cashier earning $20,000 a year would pay the same Virginia tax rate as a hedge fund manager who makes $20 million annually.
He’s wrong. Basic deductions and exemptions would lower the cashier’s taxable income to a level below the state’s top rate of 5.75 percent that the hedge fund manager would likely pay.
Englin tells us he intended to say that a cashier with a Virginia taxable income of $20,000 would pay the same rate as the rich hedge fund manager. But in such a case, the worker’s overall state income tax rate would still be lower than the millionaire’s.
We rate Englin’s statement False.
Del. David Englin, "Rebuild tax code on a foundation of transparency and accountability," January 20, 2012.
Interview with David Englin, January 25, 2012.
Email from David Englin, January 25, 2012.
Emails from Joel Davison, public relations manager, Virginia Department of Taxation, January 25 and January 30, 2012.
Interview with Ryan Losi, executive vice president of the Piascik and Associates accounting firm in Richmond, January 25, 2012.
U.S. Individual Tax Return Form 1040, accessed January 27, 2012.
Virginia Resident Tax Form 760, accessed January 27, 2012.
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