From the Desk of Senator Ruff: Baking a Bigger and Better Pie

When focusing on economic development, experts talk about the jobs that will be created and what the average pay will be. The specialist in this field also focus on the amount of money the prospect will invest. From these sets of numbers, depending on the industry or business, a multiplying factor is computed of how that industry will build the economy of the community.

     Manufacturing facilities will create more wealth, not only in the pay of those jobs created by the new business, but those payroll dollars will be recirculating through the economy up to seven times. Other businesses do also with differing multiplying factors. Those new dollars add to the community’s economy. Employees buy clothes, groceries, and other commodities. The merchants of those products, in turn, buy products with the gains at the cash register and on and on.

     When economic announcements are made, the public understands this. It is referred to as dynamic economics. In government, the same multiplying principle holds true. Despite that, government forecasters don’t attempt to calculate how new dollars add to a nation, state, or community’s economic well-being. This is referred to as static economics.

     One need only look back into history to see how wrong government forecasters have been by following static forecasting and ignoring the dynamics of how new money changes calculations. In the 1960s under President Kennedy, in the 1980s under President Reagan, and under President Trump, when tax rates were reduced, the result was that more money flowed into Washington despite anti-tax warnings of doom and gloom and service cuts proved wrong. With lower taxes, people reacted by spending more money. That extra spending resulted in greater tax receipts at each level of circulation.

     This past week, in the state Senate, the Finance Committee failed to approve the legislation that Governor Youngkin suggested and that I co-sponsored that would return $1 billion dollars to taxpayers. They either did this to spite the Governor, or they do not understand dynamic forecasting. Adding that much more money to taxpayers would have had a multiplying effect on Virginia’s economy and consumer spending just as new businesses or tax cuts in Washington. This, in turn, would have increased the tax revenues of the state and localities. This would result in more funding available for schools, law enforcement, mental health, and every other need of the state.

     For another proof that dynamic forecasting works, look to North Carolina. A decade ago, their corporate tax was 6 1/2 percent while Virginia’s was 6%. They decided to reduce their corporate tax incrementally. If, and only if, the rate reduction stimulated greater economic development, they would drop it each year. It has been overwhelmingly successful, so successful that they predict it will be eliminated completely in a few years.

     The Virginia House of Delegates has done the right thing, however. They have voted to cut your taxes. This will play out in the coming weeks. 

The Flipside

     Likewise, excess taxes can slow down the economy or the success of businesses. Another bill that I offered and was rejected this year is a perfect example.

     A couple of years ago, Senator Ebbin (D) had a tax increase bill that failed, but he slipped a portion of that failed bill into the budget. It increased the tax on cigars to 20%. For those smokers of popular priced cigars found in grocery and convenience stores, that would amount to a dime or two. However, for the 80 cigar stores in Virginia that sell premium hand-rolled cigars, this could amount to a $3 tax per cigar.

     The end result is that this will drive some customers to Washington D.C. which has no tax or in Southern Virginia to North Carolina where tax is capped at 30 cents. Loss of sales reduces the profitability of those small businesses, driving some out of business. Expected tax receipts at this onerous tax rate will not be realized. The predicted tax receipts will be far less. Some consumers will pay the exorbitant tax while others are changing their purchasing habits.

Rural Virginia Leadership

     The Center for Rural Virginia had our first leadership class last year. All that participated found it of value. We are now accepting applications for 2023. Information can be found on the Rural Center website:

     We love to hear from you! You can reach us at, 434-374-5129, or P.O. Box 396, Richmond, VA  23218.