Governor Terry McAuliffe says he’ll call for a cut in corporate taxes in the budget he submits to lawmakers later this month – a move he claims would attract more foreign companies to Virginia. That sparked criticism from some Democrats who think the state needs that revenue for schools and other social services. At the University of Virginia, one expert says taxes are rarely a big deal for firms choosing a new location. Sandy Hausman spoke with him and filed this report.
Ray Scheppach is a professor of public policy at UVA – an economist who spent nearly thirty years as executive director of the National Governor’s Association. He can see why Terry McAuliffe wants to cut the corporate income tax from 6 to 5.75 percent.
“Making a mild adjustment may get Virginia in discussions with firms that otherwise might not happen,” he explains.
But once those discussions begin, he says, firms might be asking for much more – or their decision could be based on other things.
“Most companies now locate in areas where there’s a cluster of other similar firms," Scheppach says, "because that’s where they get the highly specialized labor.”
Take medical companies for example. Many of them have opened offices in Maryland to be close to the National Institutes of Health even though that state’s corporate tax rates are higher than Virginia’s.
On the other hand, plenty of military consultants and suppliers have located in Hampton Roads, where they’re close to large bases, and overall Scheppach says, this state is competitive.
“Generally Virginia competes pretty well on taxes and competes pretty well on a highly educated labor force.”
He also sees the governor himself as an important asset when it comes to economic development.
“Because he was such a fundraiser politically, during that process he got to know personally a lot of CEOs.”
So if the quarter percent tax cut isn’t such a big deal, why is McAuliffe proposing it? Political analysts say he knows lower taxes are a key issue for his Republican opponents in the legislature, and he might propose filling the gap in lost revenue with an estimated $353 million the state would get from Washington if it expanded Medicaid. If Republicans in Richmond continue to oppose Medicaid expansion, they might be in a tough spot – forced, also, to oppose a corporate tax cut.