1. Tax Restructuring for Economic Growth in Virginia Small Business Summit October 10, 2014

2. Organizing Group for Tax Restructuring: Thomas Jefferson Institute Virginia Manufacturers Association National Federal of Independent Businesses in Virginia Virginia Retail Federation Plus a “Working Group” of 45 other interested associations

3. Basics of the Tax Restructuring Idea Premise: We can Find a way to create a more competitive tax structure to expand our economy in Virginia What taxes stand in the way of business expansion? BPOL, Machine & Tool and Merchants Capital General Idea for Tax Restructuring: Expand sales taxes to services not now required to collect that tax Use that additional revenue to restructure the tax code

4. Developed a Tax and Spending Model Beacon Hill Institute State/Suffolk University Developed the Model Used previously with bi-partisan supportive comments Supply Side Model: tax changes are dynamic Impact spending, investment, employment No serious opposition to the basic model and how it was developed Vetted by the Small Business and Manufacturing Commissions last year Secretary of Finance Ric Brown has worked with us and with this model

5. Non-variables in all Tax Model Scenarios √ Sales Tax expansion excludes all health care √ No new Business-to-Business taxes √ Eliminate BPOL, Machine & Tool, Merchants Capital taxes √ Make Localities whole from loss of BPOL. M&T, MC taxes √ Overall tax restructuring is revenue neutral

6. Economic Results of Various Tax Model Scenarios over 5-6 years Ran over 23 scenarios through the model More can be run Scenario A: Also exclude private colleges & day care Also cut all state income tax brackets by 10.25% Results: Creates 49,000 private jobs Increases investment by $416 million Increases real disposable income by $1.9 billion Increases real Gross Domestic Produce (GDP) by $3.5 billion

7. Scenario B: Also exclude private colleges, day care and grocery tax Also reduce all state income tax brackets by 7.% Results: Create 25,500 private jobs Increases investment by $471 million Increases real disposable income by $1 billion Increases real GDP by $1.8 billion

8. Scenario C: Also exclude private colleges, daycare, state portion of the grocery tax, real estate Reduce income tax brackets by 0.5% Results: Create 2,700 new private jobs Increases investment by $477 million Decreases real disposable income by $99 million Decreases GDP by $1.18 billion

9. Scenario D: Also exclude grocery tax Also exclude the bottom two tax brackets altogether Reduce remaining tax brackets by 3% Results: Creates 68,500 private jobs Increases investment by $439 million Increases real disposable income by $3.07 billion Increases real GDP by $5.52 billion

10. Tax Restructuring Can Grow Virginia’s Economy √ Expand sales tax to services except for health care √ Reduce/eliminate income tax brackets – especially for the poorest among us √ Eliminate the grocery tax – a terribly regressive tax that hits the poor √ Eliminate three business taxes that stand in the way of business expansion Business Professional Occupational License tax (BPOL) Machine & Tool tax Merchants Capital tax √ Make the localities whole so that they are not harmed

11. Support and Opposition Support: Businesses who pay BPOL. M&T and MC taxes All who pay income taxes/grocery taxes Tax Cut Advocates Tax Pledge signers Lower income Virginians Opposed: Specific industries that will have to collect sales taxes Those who only focus on sales tax increase

12. Selling this Tax Restructuring Idea √ Eliminating Grocery Tax √ Eliminating Bottom Two Tax Brackets √ Reducing Remaining Two Tax Brackets by 3% √ Eliminating Three Harmful Business Taxes √ Make the Counties/Cities Whole √ Revenue Neutral – Total Tax Revenue Equal on Day One

13. Michael Thompson, Chairman/President 9035 Golden Sunset Lane Springfield, Virginia 22153 703-440-9447 www.thomasjeffersoninst.org