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Virginia-STAMP March 2-3, 2006 Richmond, Virginia Thomas Jefferson Institute for Public Policy

This report analyzes the tax change proposals in Virginia in 2006 and provides projected effects on funds, employment, and income. It utilizes the State Tax Analysis Modeling Program (STAMP), a computable general equilibrium (CGE) tax model developed by the Beacon Hill Institute.

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Virginia-STAMP March 2-3, 2006 Richmond, Virginia Thomas Jefferson Institute for Public Policy

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  1. Virginia-STAMP March 2-3, 2006 Richmond, Virginia Thomas Jefferson Institute for Public Policy David G. Tuerck Alfonso Sanchez-Penalver Beacon Hill Institute

  2. About the Beacon Hill Institute • Housed in the Department of Economics at Suffolk University in Boston, BHI specializes in the development of state-of-the-art economic and statistical models for policy analysis.The department offers degrees in Economics through the PhD. • BHI’s major capabilities include: • State Tax Analysis Modeling Program (STAMP) • Local Area Modeling Program (LAMP) • Education Assessment Model • State Competitiveness Report

  3. Overview of VA-STAMP • STAMP is specified in terms of supply and demand for each factor of production and each commodity included in the model • STAMP is a CGE (computable general equilibrium) model – a computerized method of accounting for the economic effects of tax policy changes • Tax policy changes are shown to affect economic activity through their effects on the prices of outputs and on the factors of production • Government spending on infrastructure is modeled as exerting positive effects on production

  4. What is a Computable General Equilibrium (CGE ) tax model? • A formal description of the economic relationships among producers, households and government in a particular state and the rest of the world • Computable: generates numeric solutions to concrete policy and tax changes, with the help of a computer • General: takes all the important markets and flows into account • Equilibrium: demand equals supply in every market

  5. STAMP Analysis of2006 Tax Change Proposals in Virginia • Proposals Analyzed: • Governor • Senate • House

  6. Governor’s Proposal • Increase motor vehicles sales tax from 3% to 5% and increase the minimum tax levied on the sale of a motor vehicle from $35 to $55 • Increase motor vehicle insurance license tax from 2.5% to 4.5% • Convert Virginia’s registration fee into a weight-based registration system • Impose and collect fees on drivers who have accumulated more than eight net driver demerit points or have been convicted of reckless driving, driving on a suspended or revoked license, driving under the influence (DUI), or other misdemeanor • Reallocate $339 million for One-Time support to priority projects • Reallocation of existing Insurance Premiums totaling $579 million over four years

  7. Governor’s Proposal:Projected Effects on Funds

  8. Governor’s Proposal:Projected Effects on Employment

  9. Governor’s Proposal:Projected Effects on Income

  10. Senate Proposal • Increase motor vehicle registration fees • Increase motor vehicle sales and use tax by 0.75%, in increments of 0.25% over 3 years • Impose 5 % sales tax on motor fuels at the wholesale level • Increase tax on diesel fuel at the pump from $0.16 to $0.175 • Increase liquidated damages from overweight vehicles, based on weight • Impose abusive driver fees, with the rate based on accumulated driver demerit points • Increase grantor tax from $0.10 to $0.30 per $100 valuation • Dedicate auto insurance premium tax to transportation

  11. Senate Proposal:Projected Effects on Funds

  12. Senate Proposal:Projected Effects on Employment

  13. Senate Proposal:Projected Effects on Income

  14. House Proposal • Divert funds from the tax on auto-insurance premiums and from the recordation tax to back $583 million in bonded debt for, among other things, the relief of congestion in Northern Virginia and Hampton Roads • Use $553 million from the surplus to put toward $853 million in one-time-projects • Impose additional fines on abusive drivers to yield $590 million over four years

  15. House Proposal:Projected Effects on Funds

  16. House Proposal:Projected Effects on Employment

  17. House Proposal:Projected Effects on Income

  18. Summary:Effects After Four Years • Governor: • $2.7 billion in new state funds • $0.9 billion in other funds • 6,884 new private sector jobs • $179 in increased per-capita disposable income • Senate: • $4.5 billion in new state funds • 5,821 new private sector jobs • $179 in increased per-capita disposable income • House: • $729 million in new state funds • $1.4 billion in other funds • 8,137 new private sector jobs • $130 in increased per-capita disposable income

  19. Beacon Hill Institute 8 Ashburton Place Boston, MA 02108 Phone: 617-573-8750 Fax: 617-994-4279 E-Mail: dtuerck@beaconhill.org Web: www.beaconhill.org

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