By Steve HanerFirst published this morning by the Thomas Jefferson Institute for Public Policy.
Governor Glenn Youngkin (R) and the legislators of both parties who have given him at least some of the tax reforms he asked for need to stop being shy and take a real victory lap. He has been in office less than two years and has diverted $5 billion from tax coffers back to Virginia’s citizens so far, with more to come in 2024 and beyond.
Most of that was approved by the 2022 General Assembly and is now in effect for a second full tax year, but the 2023 General Assembly just sweetened the pot. The long-delayed budget compromise approved September 6 added more than $1 billion in single-shot refunds and long-term tax cuts.
Two years ago, the standard deduction claimed by most Virginians paying income tax was $9,000 for a married couple, and that is now $16,000, and for Tax Year 2024 will go to $17,000. That saves that couple up to $1,265 over the three years. It lowers total income taxes more than $1 billion per year.
People paying income tax (and remember many business operators pay on the individual tax returns) will now receive a second tax rebate. The rebate was up to $500 per couple for 2022 and will be another $400 for 2023, adding up to $900. They returned almost $2 billion. Looked at another way, that is equivalent to shielding more than $15,000 more of that couple’s joint income from tax. For many low-income Virginians, income tax liability was wiped out entirely.
The sales tax on unprepared food purchases was 2.5% two years ago and is now 1%. Basically, the state share of the tax is gone but the local tax remains. That was estimated to save Virginians $115 million in the fiscal year that ended June 30. Rising grocery prices make that tax break better every year.
Two years ago, Virginia provided no special tax treatment for military retirement pay. The 2022 General Assembly created a subtraction for that income, phasing in over a few steps, for retirees above a certain age. The 2023 compromise has now extended that tax break to younger retirees, who will eventually be able to shield another $40,000 of their income from tax. That was worth almost $145 million per year with the age floor, and without the age floor it is almost a $200 million annual tax break.
Two years ago, Virginia recognized the Earned Income Tax Credit, a federal provision that provides a major tax break for lower income people with jobs. Now Virginia’s EITC not only lowers their taxes, but for some it provides a refund, in effect a grant to supplement their income. The value of that to those families was pegged at $159 million in the fiscal year that ended June 30. It was not changed by the recent Assembly actions.
Those are five significant changes that reached virtually every Virginia household. Governor Youngkin had proposed far more tax relief, of course, and was left with only part of his plan. Far more was financially possible, and the state finds itself with unprecedented cash balances despite giving up these revenues. These were the tax breaks for which he could garner bipartisan, bicameral support.
That bipartisan support started with Youngkin’s predecessor. Following Youngkin’s victory where he promised tax reforms, outgoing Governor Ralph Northam (D) prepared a draft budget that incorporated some of them, including the sales tax break on food and the refundable EITC. Having those baked into the introduced budget helped.
But the bipartisanship only went so far. The early roll calls on the approved provisions were hardly unanimous, the Virginia Senate during both years showing the greater resistance to lowering revenues. Those who are seeking new terms may claim it was only a negotiating position and they were planning to agree eventually. The voters should think about that, at least.
The Democrats have attacked Youngkin’s failed plans to lower the top individual tax rate from 5.75 to 5.5%, and to lower the corporate income tax from 6 to 5%. The quarter point drop in the individual rate probably faltered because it was so small few taxpayers would get excited about it, and the business community greeted the corporate tax proposal with total silence and indifference. Their loss.
Between now and the election, just after they claim credit for various tax reforms they initially opposed, many candidates will now say something like “we put people over rich corporations.” The line was trotted out during the recent special session. Corporations are just groups of people, and business taxes always come out of the pockets of human beings of all income levels, but those facts are lost to the voters they target.
Whether Virginia can continue to lower taxes will depend first on the election outcome and second on the continued performance of the state’s economy. Both will be clear when Governor Youngkin makes his next major push to the legislature with the introduction of his first real budget bill in December. As Cato always concluded with the demand that Carthage must be destroyed, the Jefferson Institute will always return to the demand that the Virginia tax code must be indexed to inflation.
22 responses to “Youngkin’s Partial Tax Wins are Still Impressive”
Matt Adams
“But the bipartisanship only went so far. The early roll calls on the approved provisions were hardly unanimous, the Virginia Senate during both years showing the greater resistance to lowering revenues. Those who are seeking new terms may claim it was only a negotiating position and they were planning to agree eventually. The voters should think about that, at least.”
Holding politicians accountable for this votes is always the true measure, unfortunately most people don’t use that attitude and just vote party lines no matter how that person votes.
“But the bipartisanship only went so far. The early roll calls on the approved provisions were hardly unanimous, the Virginia Senate during both years showing the greater resistance to lowering revenues. Those who are seeking new terms may claim it was only a negotiating position and they were planning to agree eventually. The voters should think about that, at least.”
Holding politicians accountable for this votes is always the true measure, unfortunately most people don’t use that attitude and just vote party lines no matter how that person votes.
No, the conservative thing to do would be to rebate in proportion to the amount paid. Taxing some people $4,000 just to give them back $400 so others, who were taxed $40, can also get back $400 is just another income redistribution scheme.
Obama would be proud.
Just lower the taxes and ask the state to live within its means.
You don’t know year to year how things will work out so the “conservative” thing to do is to wait until the dust settles and then do the rebate.
The DUMB thing to do is to do a permanent tax cut when you really don’t know future performance with great certainty and then have a shortfall … and has happened before… as some in the GA with long memories do recall.
Counties are doing this also. They set the tax rate… and if it brings in more than needed, they pay off some debt early, accelerate the capital investments and/or do rebates.
It’s called responsible fiscal planning… used to be a core “conservative” philosophy!
It’s forecasting for revenues in the future that is not an exact science, especially being able predict downturns.
We also things we have not yet paid for – like the CSO facilities in Richmond that were stripped from the bill.
It’s a myth to say “squander” in Virginia. It’s a carefully run lean operation in many respects.
It’s just the mindset of the anti-tax folks that we ought not be paying taxes in the first place, that govt needs to be minimal..
It’s just not reality.
Youngkin figured that out but others are perpetually hard-headed.
DJRippert
“It’s a myth to say “squander” in Virginia. It’s a carefully run lean operation in many respects.”
Once upon a time that was true.
No more.
Taxes in Virginia have steadily grown faster than inflation + population growth.
We are, at best, a mid-level tax state.
LarrytheG
compared to most other states, yes… we are one of the few to have an AAA credit rating, no?
We continue to have unfunded programs. What do you consider to be over funded and underperforming agencies in Va?
Matt Adams
“Just lower the taxes and ask the state to live within its means.”
They are quick to add new taxes and rather slow if not at all to remove them.
Single folks are hurting – remember singles dont pay 1/2 price because they only have 1 income not 2. I’ve not seen crap but higher taxes and nothing back for it.
Liquidity is liquidity. Inflation doesn’t care about the source of the new dollars in the economy. I certainly don’t see this $5 billion being offset in reductions to spending? Do you? Just to put this in perspective, this would equate to about $200 billion being injected into the economy nationwide. On a recent thread, several commenters were lambasting Biden over his student loan forgiveness program because it increased inflation. That program is a little over half of this.
I honestly don’t think this (or Biden’s program) moves the needle on inflation. With the cheerleading going on here, though, it simply demonstrates that the Right really doesn’t think inflation is an issue either.
There is no sense in trying to explain inflation to a group of people who believed the right hands “it’s transitory” argument while the left hand was printing funny money.
It baffles me that people don’t seem to understand the simple principle that the more the dollar is devalued through printing, the greater inflation.
LarrytheG
We’d have to tax more to pay off the deficit. Wouldn’t that take money out of the system?
We have what boils down to about 20-30 yrs of debt to pay down, right?
Eric the half a troll
Seems like that would mean a cut in spending which would pull money out of the economy so inflation would then drop, of course (as would the GDP – likely setting off a pretty serious recession). As I noted above, I don’t see a reduction in spending so this tax cut is stimulus.
LarrytheG
I think you’re right. This is little different from taxpayers receiving recovery-rebate checks from the IRS.
If this money went instead to pay more into the rainy day fund, some capital improvements, and currently unfunded liabilities , boost teacher pay to be on par with national averages, etc, it would not be “stimulus”.
energyNOW_Fan
“…For many low-income Virginians, income tax liability was wiped out entirely.”
This is what I have been saying: it’s hard to imagine a more tax friendly state than Virginia below around say $80-90k income on a joint return. The burden is picked up mainly by middle class whereas the discounts are phased out. Wealthy do fine due to non-progressive (flat rate).
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