Youngkin renews tax-cutting push after mixed reception from General Assembly

After taking questions from a lunchtime crowd at a Chesterfield County barbecue restaurant, Gov. Glenn Youngkin asked one of his own.

How would the diners spend the extra money they’d have, Youngkin asked, if the billions in tax cuts he’s proposing make it through the General Assembly.

“Buy more wine,” one woman said.

“Go out to eat more often,” said another.

“Share it with my employees,” said a man standing in the back.

As the General Assembly session hit halftime, Virginia’s new governor marked his 30th day in office with a state tour meant to build support for his tax-cutting plans, which have gotten a mixed response in the politically split legislature. 

Parts of it, such as a plan to give every Virginia taxpayer a one-time rebate of $300, have passed with strong bipartisan support. Other proposals, like eliminating the state’s grocery tax and suspending a scheduled increase in the gas tax, have been a tough sell in the Democratic-controlled Senate.

At the Chesterfield stop, Youngkin offered assurances that all his proposals could be paid for, pointing to last year’s record surplus to argue the state has enough money to make new investments in government services while also giving taxpayers a break.

“We have seen the coffers in Virginia’s government continue to fill up at an extraordinary rate because they’re overtaxing all Virginians,” Youngkin said. “And at the end of the day, it is your money.”

Standing alongside the governor, Youngkin Finance Secretary Stephen Cummings, a former investment banker, compared the people of Virginia to “shareholders” in a publicly traded company.

“And it’s our obligation to run this in a way that delivers effective services and an efficient cost,” Cummings said.

Arguing against some of the tax cuts, Democrats have raised doubts about whether Youngkin’s promises of better services with less tax revenue will pan out. They’ve also pushed for more targeted relief directed to the neediest Virginians rather than broad cuts that would also benefit the wealthy.

“Those who make the least, pay the most of their income to taxes,” Del Marcia Price, D-Newport News, said on the floor of the GOP-led House of Delegates while opposing a $2 billion proposal to reduce Virginians’ taxable income by doubling the standard deduction. “And this bill does nothing to address our upside-down tax code which asks the most of those with the least, and the least of those with the most.”

In a Friday letter revealing a new revenue forecast that shows the state will take in another $1.25 billion above already-strong projections, Youngkin urged lawmakers to make tax relief the “centerpiece” of the budget that will become a focal point this week, requiring bipartisan passage before the legislature adjourns March 12.

In total, Youngkin said the state is protected to bring in $13.4 billion in unanticipated revenue. The governor said wants to give $4.5 billion back to taxpayers.

“That leaves nearly $9 billion in new revenue to invest in schools and teachers, law enforcement, behavioral health, and the other important priorities of the General Assembly,” Youngkin wrote.

Altogether, the Youngkin administration estimates the cuts could mean $1,500 for a typical Virginia family.

With the two legislative chambers preparing to take up each other’s bills in the session’s second half, here’s where things stand on tax policy:

Taxpayer rebates

In his final budget proposal. Gov. Ralph Northam suggested one-time tax rebates of $250 per individual and $500 per married couple. Looking to deliver on a campaign promise, Youngkin is proposing slightly larger rebates of $300 per individual and $600 per married couple, and those bills have sailed through each chamber with unanimous support. The refunds for the 2022 filing year could not exceed a taxpayer’s total liability.

Del. Vivian Watts, D-Fairfax, a tax policy expert for House Democrats, noted she was supporting the rebate proposal and opposing other tax cuts because a flat amount returned to everyone would mean more to lower-income filers than the rich.

“As I look at that menu, this is the only one that has an element of progressivity,” Watts said at a committee hearing.

The version of the bill that passed the Senate doesn’t set a specific rebate amount, leaving that as a point of negotiation in budget talks.

The General Assembly approved similar rebates in 2019, with $110 refunded to individual filers and $220 for married couples.

The rebates would reduce state revenues by an estimated $1.25 billion in the upcoming budget year. The cost difference between Northam’s proposal and Youngkin’s is $202.8 million.

Grocery tax repeal

Eliminating Virginia’s 2.5 percent tax on groceries was one of Youngkin’s marquee campaign proposals, but the House and Senate have approved two different grocery-tax plans.

The House bill does away with both the state (1.5 percent) and local (1 percent) components of the tax, while requiring the state to provide “supplemental school payments” to localities to make up for lost school funding.

The Senate bill does away with the state portion but retains the local portion of the grocery tax.

Both versions also include tax exemptions for personal hygiene products such as menstrual products and diapers.

Youngkin said he remains confident a full repeal of the grocery tax is achievable.

“Part of this is just making sure that we’ve got a good formula in order to make sure that education budgets aren’t damaged,” he said.

In the House, where the full repeal bill passed 80-20 with some Democratic support, Watts raised a specific objection to part of that formula. Starting in 2024, she said, the state’s payments to localities to protect education funding would be based on total sales tax collections without taking into account school-age population.

“If you’ve got a retail core, and not many kids in the retail core, they’re going to get a lot more money,” Watts said. “Those where the kids are, where there may not be much retail action, they’re going to get a lot less money. This is a major change in how we have funded our schools.”

Skeptics have also raised concerns about the potential hit to transportation funding, according to the Richmond Times-Dispatch, but Republicans say recent transportation revenues have been strong enough to make up the difference.

Gas tax relief

The Senate blocked a Youngkin-backed proposal to temporarily suspend a 5-cent increase in the per-gallon gas tax and a 6.8-cent increase in the diesel tax, a plan Republicans are pitching as a way to reduce the pain of higher gas prices. If approved, the plan would reduce transportation revenues by $275 million for fiscal year 2023 before allowing the rates to rise again in July 2023.

Democrats have argued the benefit to drivers, many of whom are non-residents passing through Virginia, isn’t worth forgoing needed transportation funds.

In a hearing, Sen. Janet Howell, D-Fairfax, said cutting the gas tax now would leave lawmakers facing “the hard political reality of raising the tax again” in the future.

“I would urge caution on this,” Howell said.

Sen. Mark Peake, R-Lynchburg, one of the plan’s sponsors, insisted it was “doable” and would help Virginians “hurting” at the gas pump. But he seemed to acknowledge the bill would not have support from Democratic leaders.

“Senator Saslaw has stopped me in the hall a couple of times to tell me how much he really appreciates my proposal,” Peake said sarcastically, referring to Senate Majority Leader Dick Saslaw, D-Fairfax.

The gas tax proposal passed the House along party lines in a 52-48 vote.

Doubling the standard deduction 

One of Youngkin’s most sweeping tax proposals would double the state’s standard deduction, reducing how much of Virginians’ income would be subject to taxation.

The governor wants to raise the deduction from $4,500 to $9,000 for single filers. For married couples filing jointly, the deduction would increase from $9,000 to $18,000.

The proposal passed the House on a party-line vote, but Senate budget leaders voted to send the issue to a joint subcommittee on tax policy for further study and possible consideration in 2023.

Youngkin has floated the idea of getting rid of the state’s income tax altogether, though his campaign acknowledged last year that may not be possible in the near future.

The proposal approved by the House would reduce state revenues by $1.24 billion in fiscal year 2023, according to legislative estimates.

Tax breaks for military benefits

Both chambers have passed bills expanding tax breaks for military benefits, including retirement income and payments to surviving spouses.

The legislation received strong bipartisan support in both chambers. Broadly, both bills would allow military retirees to subtract a portion of their retirement income from their state taxes, at a cost to the state of between $200 million and $300 million per year.