Northam’s Tax Hikes Keeping Virginia Budget Afloat

This column was published originally in the Thomas Jefferson Institute for Public Policy newsletter. Steve normally re-publishes it on Bacon’s Rebellion himself, but he is volunteering at the polls today, so I am posting for him. — JAB

by Steve Haner

One quarter into the new fiscal year, despite the ongoing COVID-19 recession, Virginia state government is blowing the roof off its revenue estimates. Thank tax increases Governor Ralph Northam has signed.

Secretary of Finance Aubrey Layne recently reviewed the July through September 2020 results with state legislators, offering his standard slide presentation. Compared to the year before – before COVID — the state’s total General Fund revenue was up 9.9%, sales tax revenue was up 7.5%, corporate income tax receipts up 36% and estimated individual tax payments (those not withheld from paychecks) up 59%.

Now more tax increases are being proposed for the 2021 General Assembly. The Transportation and Climate Initiative in particular is a new carbon tax on gasoline and diesel. The proposal to restore a state inheritance tax on large estates is back. Virginia’s leading progressive group is actually hiring a “revenue campaign manager” to lead the 2021 and 2022 fight “to secure expanded progressive revenue options.” The tax changes already in place will see our revenue “progress” quickly.

In the early days of the COVID pandemic, just as the ink dried on a new state budget, Northam and Layne wisely assumed a major drop in revenue and froze large parts of the budget. The adjusted forecast for the fiscal year that began July 1 was based on a projected drop in revenue from last year of 1.8%. So far, the opposite has happened.

Yes, Northam was less strict in shutting down the state’s economy than some of his fellow governors and Virginia’s economic sugar daddy – Uncle Sam – has kept paychecks and contracts flowing. But three tax increases passed and signed in 2019 and 2020 have made the biggest difference.

Federal Conformity: Two years ago, it was clear the federal Tax Cuts and Jobs Act, with its restrictions on tax deductions and other preferences, would create a bonanza of state revenue, perhaps $4.5 billion over six years. These were estimates provided by the state’s own consultants, and the Northam Administration was not interested in giving that back. It conformed Virginia law to the various federal rule changes but made no adjustment to tax rates to compensate.

The 2019 General Assembly authorized a small, one-time tax rebate for individuals, paid out just in time for the 2019 elections. It also tweaked Virginia’s standard deduction. But at best about one-third of the conformity tax harvest was returned to taxpayers, with close to $3 billion over six years retained. You are now seeing that in the various income tax categories.

The General Assembly also voted to impose a wealth tax through what is called the Pease Limitation. That cap on deductions was waived for 2018 and restored in 2019, in time to fatten coffers during the recession. That added to the non-withholding tax growth.

Virginia grabbed every dollar created by conformity to the federal changes on corporate taxes, partly behind the 36% jump in that levy last quarter. The Thomas Jefferson Institute’s 2019 proposal to reduce corporate rates and forestall that received bipartisan dismissal.

Internet Sales Taxes: The 2019 General Assembly expanded Virginia’s sales and use tax to cover most online retail transactions, following a Supreme Court decision involving the retailer Wayfair. The tax policy was sound and also had bipartisan support, and Secretary Layne has been open in attributing the stability and even growth in sales tax revenue to that change. He’s right.

Transportation Taxes: It was the 2020 General Assembly that imposed the transportation tax increases, again in bipartisan votes. The basic statewide fuel tax went up 5 cents a gallon, but in many parts of the state a supplemental regional tax increase added another 7.6 cents. Diesel saw comparable changes, and a new Highway User Fee was imposed to extract revenue from high mileage, electric and hybrid vehicles.

These changes were not enough to overcome the impact of the COVID recession on driving in the spring and summer, but vehicle usage is coming back strong. September 2020’s fuel tax revenue of $96 million was up 19% from the year before. The Wayfair sales tax is also increasing the sales tax dollars dedicated to transportation. Overall 1Q transportation revenue was up 2.3% over the previous year, not down.

Those three were not the only tax hikes of the Northam years. Tobacco, vaping and gaming taxes also rose. They may not be the last of the Northam tax hikes. But those three have kept state government in the black.

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19 responses to “Northam’s Tax Hikes Keeping Virginia Budget Afloat

  1. I think all these tax increases are taking Virginia in the wrong direction. But if you’re going to have tax increases, it is some consolation to see that at least Virginia’s budget is running in the black. That’s not the case for many states. I’d rather have fiscally responsible liberalism than fiscally reckless liberalism.

    The left-leaning Center on Budget and Policy priorities wrote Oct. 5: “COVID-19 has triggered a severe state budget crisis. While the full magnitude of this crisis continues to unfold, state revenues are declining precipitously and costs are rising sharply, with many businesses closed or operating at reduced hours and millions of people recently unemployed. Due to the economy’s rapid decline and uncertainty about its future path as well as possible federal aid, official state revenue projections likely do not yet fully reflect the unprecedented fiscal impact of the coronavirus pandemic.”

  2. A little bit ironic that the “conformity” issue in Virginia was the result of Federal tax policy including tax cuts?

    The gasoline tax is NOT an increase as much as it is getting back revenues lost due to more and more fuel efficient vehicles – something brought about by Federal regualtion.

    Taxes on cigarettes and vaping to help pay for Medicaid is a good and right thing.

    Finally, for all the talk of “leftists” taking over Virginia and giving “goodies” to those who vote Dem is proven to be yet another false analogy from the folks talking about “boggeymen” Dems.

    Virginia is a Dem-governed state that is fiscally responsible.

    Let me repeat that – we are a fiscally responsible state despite all the anti-tax blather from right-leaning organizations like Thomas Jefferson.

    • Odd. Secretary Layne has already responded calling this fair. Just telling people what is going on crosses a line with Larry.

      • Good LORD – cell phones in the polling precincts! 😉

        re: ” Northam’s Tax Hikes Keeping Virginia Budget Afloat”

        well no… the conformity was not something Northam came up with…

        and the gas tax was truly bi-partisan as was the internet tax and both were in response to declining revenues for existing taxes… more of a “get back” than a “new” tax.

        But the basic premise here with partisans has been to refer to Dems in Virginia as wild-eyed leftists out to tax the bejsus out of people at the same time driving the Old Dominion into Illinois/New Jersey style fiscal disaster.

        NOT TRUE! Purely the boogeyman blather of TJ and like-minded!

        Steve – I do not really understand what precipitated the latest dust-up but … I know I’m going to regret this… stick around… if you can… you’ll get bored and won’t be able to really stay away anyhow – like now… so settle it down… 😉

        • I was and am now on break. Early rush, slow afternoon. State had every chance to avoid a windfall from conformity but chose not to. But it clearly is a big reason we’re not as broke as some other states. I just won’t abide the coming calls for more, more, more.

      • Larry really likes to write, and I’m convinced that he will go out of his way to find something to object to. One day I think I might post something he’s written long ago just to watch him object and find fault.

        • I dunno… I think you guys are far outwriting me these days!

          But on taxes and Virginia, it’s just wretched blather…

          Virginia is a fairly fiscally conservative state and though few “like” taxes anymore than we like electric bills and broken stuff that needs repairs… it’s a thing that needs to be done.

          We all want roads with less potholes and schools that are heated and Sheriff deputies that earn a living wage… and 911 that shows up before you die.

          And no… you can go back as far as you want and chances are that you won’t find me on the other side of this.

          Should my money pay for needed infrastructure and services or river cruises in Europe or that AR-15 I’ve been lusting after?

          • If you truly support all those things then you should vote Republican.

            “We all want roads with less potholes and schools that are heated”

            Nobody can waste money quite like Richmond which has been dominated by Democrats for years. Time to shake it up if you want change.

            “Sheriff deputies that earn a living wage… and 911 that shows up before you die.”

            It’s not Republicans who seek to defund the police.

            Virginia could fund the services you mention and more without increasing taxes.

          • We have to pay the bills to keep our infrastucture and services operating at an acceptable level.

            Only left-wing wackadoodles want to de-fund the police – just as right-wing wacadoodles support equally radical ideas like citizen militia maintaining law and order.

            Public roads and public education are socialism, so is Medicare and Medicaid. In a true Liberarian world – both would be private and up to individuals to pursue.

            Are public roads and public schools a Republican idea? Do they support socialism also?

          • Regarding roads with less potholes…

            It’s been my observation that VDOT doesn’t even bother to seal pavement cracks anymore.

            Sealing pavement cracks is known to extend the life of pavement and prevent potholes.

            So why doesn’t VDOT do it anymore?

            Anyone know?

          • VDOT spends 2.7 BILLION a dollars a year on maintenance and operations.

            I’ve noticed also that they tend to wait to fix and repair rather than do it right away. I presume there is a cost-effectivenss issue as well as competing priorities such as structurally deficient bridges and such.

            This is one reason why VDOT support an increase in gas taxes. Over the years, they have lost revenues because cars are becoming incresingly more fuel efficient – use less fuel – pay less gas tax.

    • How could you possibly have read Steve’s column and come up with this observation …

      Finally, for all the talk of “leftists” taking over Virginia and giving “goodies” to those who vote Dem is proven to be yet another false analogy from the folks talking about “boggeymen” Dems.

      Where did Steve ever discuss where the higher taxes will be spent? My guess is that those taxes will be disproportionately spent on those who vote Dem.

      • do you read BR regularily? 😉

        is there a narrative in BR about Dems getting elected for promising goodies to their constituencies?

        Has Steve ever uttered such outrageous blather?

        oh go on………… 😉

        Now, I WILL say that Steve seldoms mentions blackface plantation elites… and such…

        • The Governor is the Governor. He signed these bills, and proposed most of them. But I accurately reported most had some level of bipartisan support. Fiscally conservative? Low tax state? I’ve updated my list of tax hikes (passed or authorized) in this administration and there are now 27 bullet points, with another session coming. No, it is no longer possible to apply “fiscal conservative.” There is good management in general, but spending is running up fast. Larry thinks it all good and needed, others don’t, but my main goal is just to keep track….

          The readership stats on these stories are ridiculously low. I’m not screaming over racial preferences, pulling out my hair over radicals in the faculty, attacking the Governor over COVID, etc. My writing is too tame for this crowd.

          • What truly new taxes did Northam seek? The gas tax was needed to re-capture lost revenue and so was the internet tax.

            If you take out the Medicaid Expansion – how much increased spending that came from truly higher taxes that the Gov specifically advocated for?

            Thanks for staffing the precinct yesterday. I thought you’d be sleeping in today!

          • Steve, I share your frustration. News coverage about what I call “good government” issues — digging into the arcana of how government works — never do as well as people stories. That’s always been true, and nothing has changed. The vast majority of readers relate to people, not processes. That’s why every political movement needs a cause celebre, a person whose predicament personifies a larger issue.

            But someone has to write the good-government stories. They may not generate as many clicks, but they are read by the people involved in making the decisions. So, I wouldn’t get too caught up in the numbers.

            But if you insist upon looking at the numbers, one of your 2019 posts arose from the morgue and did extremely well yesterday. “Will VA Now Help Kill the Electoral College” racked up 389 page views. Where did all those readers come from all of a sudden? Who knows? The point is, in the age of digital media, you never know when your efforts will pay off. Buck up. If nothing else, rest assured that regular Bacon’s Rebellion readers appreciate what you’re doing.

  3. I just finished my Va. Taxes by the Nov. 2nd extension deadline. I owed the state money this year, apparently contributing (ever so slightly) to the unexpected budget overage.

    One gripe is that TurboTax does not allow electronic filing after Oct 15. One would think, with all of the past campaign donations TurboTax made to Virginia elected officials (to encourage Virginia to eliminate its free online tax filing system that I used) we could have at least asked TurboTax to extend the eFile to Virginia’s Nov. 1 deadline. Oh well, at least I saved +$25 in eFile cost on top of the +$30 cost of the Virginia TurboTax state add-on. Used to be free Va. online.

    Don’t forget the extra cost of outhauling the coal ash to somebody else’s backyard.

    P.S.- my spouse says the TurboTax thing was not done by Blue Virginia elected officials. I never said I was blaming the Dems for that, but I would assign joint and several blame.

  4. So a FAIR assessment of Virginia spending would show the net new spending.

    The Medicaid Expansion is going to be a biggie but it’s actually not from tax increases but rather getting tax revenues BACK from the Federal govt that Virginia taxpayers already pay but we had refused to get back!

    New spending for education – how many here in BR say more needs to be done for the achievement gap? can’t do that without more teachers.

    More spending for stormwater and sewage system upgrades… that’s not a good thing?

    So, narrow it down to net NEW taxes and net NEW spending.

    How many new programs that are funded from new taxes?

    • Nope. Write your own if you want to dictate the terms. And raising the rate on an existing tax (gas, sales, income, tobacco) is pure and simple a tax increase.

      (Later Addition) You would be surprised, Larry, by how many readers thought I was actually “thanking” Governor Northam for the tax increases, when I intended the word “thank” to indicate responsibility, not praise. A lesson in how literal many readers are….

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