Tax Bonanza From Stock Market Doesn't Convey An
Accurate Picture Of Economy Throughout The State
8, 1999 -- Adjectives like "booming," "flush," "raging"
and "robust" have been used to describe it.
Virginia's economy is indeed performing nicely, the picture has
been exaggerated by a roaring stock market and simply mirrors the
national economy, including being vulnerable to world problems,
a University of Virginia economist says in a new report.
inevitable slowdown or reversal in the national economy and stock
markets at some point will have a major negative impact on the state's
currently rosy tax-revenue scenario, warns John L. Knapp, professor
and director of business and economic research at U.Va.'s Weldon
Cooper Center for Public Service.
by capital gains in a strong bull market, the state government's
individual income tax collections in recent years have conveyed
the impression of more economic growth than has occurred," Knapp
writes in the current issue of the center's Virginia News Letter.
"not every part of the state has been an equal participant in the
good times," Knapp says, with Northern Virginia's strong showing
overshadowing problems of such slow growth areas as Southwest Virginia,
Southside Virginia and the Eastern Shore. Northern
Hampton Roads and the Richmond area accounted for more than two-thirds
of the state's employment growth in 1998, with Northern Virginia
alone responsible for 44 percent.
the 1970s and 1980s Virginia's economy grew faster than the nation's.
But in the 1990s, with the downsizing of the military at the end
of the Cold War, the state's economic growth has basically tracked
the national average, Knapp says. Virginia's per capita income is
still above the national average but has fallen compared to the
nation's in the 1990s.
forecasters agree that the national economy will slow in 1999 due
to stagnant profits, flat exports, and slower growth in consumer
spending," he says. "There are still risks of a meltdown in international
markets and a major correction in the U.S. stock market, developments
that would have dire economic effects on the nation and the Commonwealth."
Virginia economy is retooling itself to become a leader in telecommunications,
semiconductor manufacturing and biochemicals," Knapp says. But there
will be challenges "competing in a world economy that is going through
population growth has slowed during the 1990s and dropped below
the national rate in 1998 as fewer people have moved into the state
state's general fund revenues, fueled by large increases in individual
tax collections, are growing faster than the economy itself, Knapp
says. "The reason for this appears to be the booming stock market."
revenue forecasts assume modest increases in tax collections in
the next two years. But a major stock market downturn with a long
period before recovery would hit the state hard, Knapp says. "Such
an outcome would have a major negative impact on general fund revenues,
not only because of lower income tax receipts from capital gains
but also because reduced consumer and business confidence would
be reflected in less consumption and business investment."
additional information or interviews John Knapp may be reached at
(804) 982-5604 or at firstname.lastname@example.org. Television reporters should
contact the TV News Office at (804) 924-7550.
Bob Brickhouse, (804) 924-6856.