Bacon's Rebellion

By Steve Haner

In the past few years, under governors of both parties, Virginia has expanded its standard deduction for income taxpayers from $6,000 for a couple in 2018 to $17,000 today saving those taxpayers $633 per year. When they produce their budget bill on Sunday, the Democrats who hold the majority in the Virginia Senate may try to claw back that $633. This would be a major tax hike on millions of Virginians. 

The Senate Finance and Appropriations Committee on Tuesday deferred action on three Republican bills that would have made that $17,000 standard deduction permanent. It is scheduled to expire at the end of 2025, and all it takes for the General Assembly to capture about $1 billion in new revenue is to do nothing.  

Nothing is what the Senate Democrats did when those Republican-sponsored bills were considered. They were “passed by for the day.” To pass them now “significantly hamstrings our ability to construct a budget,” said Senator Creigh Deeds, D-Charlottesville. “We need to look at our entire tax structure,” added Senator Mamie Locke, D-Hampton. “Those who earn more should pay more,” she added. 

Thus, a target was clearly placed on the standard deduction, which could retreat from $17,000 this year to only $6,000 next year for that taxpaying couple if no extension is approved. Another $11,000 of income would be hit with tax and that would cost the taxpayers $632.50, enough to reduce take home pay on paychecks. An undetermined number of low-income people who now pay no tax would start to do so again.  

Over in the House of Delegates, the exact opposite move is underway. A bill sponsored by a senior Democrat would not only maintain that higher standard deduction, but would increase it another $1,500 per couple to $18,500, saving another $86. The House bill has passed one committee unanimously but will also get tangled up in the House’s version of the state budget released Sunday.  

By Steve Haner

If it were my job to pass the bill to eliminate income tax on tips, my first move would be to fill the room where a committee was voting with men and women who depend on tips and who would benefit from the bill. I’d have the legislators considering a no vote looking out at motivated constituents. With some nice signs, maybe, and some speeches at the podium.

But Governor Glenn Youngkin’s proposal to create that tax break for Virginia taxes was rejected Monday afternoon in front of mainly lobbyists. It was “passed by for the day” by House Finance Committee Subcommittee #3, but that includes most of the senior Democrats on the full panel.

Language to eliminate tip income from the list of taxable items is also buried in the Republican Governor’s budget bill. It is too soon to totally write off the idea, given the ebbs and flows of a session and given that at some point it may become federal tax law. 

The bill in question, House Bill 1965 offered by Delegate Anne Tata, R-Virginia Beach, initially included two big tax proposals that helped propel Donald Trump into the White House, the tip provision and a provision to eliminate tax on overtime. She reduced the bill to focus only on tips in a substitute. Eliminating taxes on overtime would blow a major hole in the state’s revenue, per the impact statement. 

Another, more significant tax cut advanced, however. The subcommittee unanimously endorsed both increasing the state’s standard deduction and to automatically increase it for inflation in future years. That was offered by Delegate Vivian Watts, D-Fairfax, who has long spoken in favor of indexing tax provisions, a taxpayer protection that has long been in federal tax law.  

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