Virginia’s tax policy discussions center on the middle class, but what does ‘middle class’ mean?

What defines Virginia’s low- and middle-income residents is at the heart of a heated debate about taxes.

Democrats and Gov. Ralph Northam want to adjust tax policy to benefit what they’ve called low-income Virginians while Republicans want to focus on tax relief for the middle class.

But based on income data, both plans would benefit the state’s wide-ranging middle class.

Northam, a Democrat, lasered in on people making less than $55,000 a year — lower-income Virginians, he’s called them — while Republicans have focused on what they call the middle class: people like a couple that makes $110,000 to $130,000 a year, leaders have said.

However, according to available data on what Virginia’s middle class looks like, Northam’s plan is not just a fix for people with low incomes, it also affects members of the middle class in most parts of the state.

And despite criticism Republicans have received for presenting a plan that would only benefit high-earners, parts of their plan would benefit the same low-income earners Northam wants to help.

The administration’s plan doesn’t seem to have a way forward since House Republicans have advanced their own legislation and the Senate has an entirely separate plan moving through its chamber that will give tax relief to people of all income levels, Sen. Tommy Norment, R-James City, said recently.

There is no single official way to define the middle class, said Kathryn Piper Crespin, a policy analyst at the University of Virginia Weldon Cooper Center for Public Service. The center makes population estimates that are used in official state reports.

Experts who study the subject have different ideas of what range of income defines the middle class, and even if that was agreed upon, there’s not consensus that income is the only thing that defines a social class, Crespin said. Household size and cost of living are some of the other considerations when coming up with a definition of an income class.

Crespin said data from the national Pew Research Center is one of the better estimates of what middle class means. Pew used decades of income data from the U.S. census for the country’s metro areas and adjusted it for household size and cost of living to determine ranges of income that make up the middle class.

Middle-class households, as defined by Pew, are people and families who make two-thirds to double the national median income, which is about $57,000, according to the U.S. Census. On a national level, that means middle-class households would make between $38,000 and $114,000 a year.

A Virginia middle-class resident makes anywhere from $37,750 to $113,251 a year, according to Pew’s data. That range includes both the demographic groups Northam and Republicans have said would benefit from their respective tax plans.

The average median income in the state is about $68,000 a year.

Based on the income range estimated by Pew, the middle class in Virginia includes a range of occupations, according to data from the U.S. Bureau of Labor Statistics. At the low end of the middle class are jobs like veterinary techs, hair stylists and municipal clerks. At the high end are jobs like engineers and medical services managers.

Two or more people in one family — or household in tax terms — who earn middle-class wages means they’re likely top earners everywhere in the state except Northern Virginia, where they’d still be at the top end of the middle class.

Northern Virginia’s middle class includes people with incomes from $43,950 to $131,380, according to Pew. On the other end, the area around Blacksburg and Radford have the lowest income range that qualifies for middle-class status, with a range of $32,658 to $97,974 a year.

Most of the state’s middle-class residents live in the Hampton Roads region, where 57 percent of residents have that label, according to Pew. Northern Virginia has the lowest share of middle-class residents, with about 49 percent making enough to be considered as such.

Who wins in each tax plan?

If it’s difficult to estimate what the middle class is, it’s even harder to know how many of those people would be affected by various tax policy proposals.

Tax liability and refunds depend on a number of choices the individual filer makes.

Northam proposed using $215 million of projected revenue from the Tax Cuts and Jobs Act to make the earned income tax credit fully refundable. It’s estimated that more than 600,000 Virginians who make less than $55,000 a year would benefit from that change.

Part of that money comes from revenue the state would hold on to that would have previously been refunded to some taxpayers. In Virginia, residents can’t take the federal standard deduction and itemize their state taxes. But now that the federal standard deduction is much higher than the state’s, taxpayers may be leaving money on the table when deciding to itemize or take the unchanged state standard deduction.

That practice would disproportionately affect middle-class Virginians, Republicans said. The party came up with a plan that would raise the standard deduction, allowing people to itemize deductions on their state taxes while taking the higher federal standard deduction and lifting the restriction on writing off state and local taxes.

Raising the standard deduction would benefit low and middle-income Virginians, the GOP said in a release. A married couple that chooses the higher standard deduction would get $115 more on their refund because of it. 

Decoupling — allowing itemization on the state level while taking the federal standard deduction — would get about $800 more for a married couple that owns a home with a combined annual income about $110,000.

And allowing people to continue to deduct property taxes higher than $10,000 will especially benefit homeowners in Northern Virginia, said Del. Tim Hugo, R-Fairfax, who is carrying the party’s tax legislation.

Chris Wodicka, a policy analyst with Richmond-based think tank The Commonwealth Institute, said Hugo is right. The Institute analyzed data from the Internal Revenue Service and found Falls Church was the only locality that had local taxes close to $10,000. Alexandria, Charlottesville and Arlington and Fairfax counties also had real estate tax deductions close to $10,000, but only among taxpayers with incomes more than $200,000. 

It’s hard to know how many individual households may take advantage of each of the provisions because there are different ways they could file taxes, but the Joint Legislative Audit and Review Commission estimated the changes would total $594 million.

The Virginia Society of Certified Public Accountants said in an analysis of tax options that raising the standard deduction affects all taxpayers and decoupling would benefit taxpayers in higher income brackets, since it is most beneficial when filers have several big-ticket write-offs, like a mortgage-interest payment.