The House Finance Committee will hold its first meeting of the 2019 General Assembly Monday morning, finally starting public discussion of Virginia’s response to a major federal tax overhaul from 13 months ago that will…
No! Belay that! All House bills dealing with how Virginia conforms to that federal change, and what other policy changes might follow, have been assigned to the House Rules Committee, chaired by Speaker Kirk Cox and meeting whenever the Speaker decides for it to meet. The one bill on the issue assigned to Finance is likely to also be referred to Rules tomorrow.
Sending a controversial issue to Rules instead of the subject-matter committee is becoming a common House Republican tactic, with Rules the one committee where there is not partisan balance reflecting the 51-48 party makeup of the chamber. The Democrats have six of 17 votes on that committee, and the 11 Republicans all chair committees themselves. The tax measures sit with dozens of other hot button issues. The days when Rules focused on resolutions and, well, the rules, may be gone forever.
Senate Finance will meet Tuesday and perhaps start the long-delayed discussion, and it has nine bills on the topic so far, with several days left for final bills to trickle in. The Senate lacks, however, a bill that has any majority leadership consensus behind it, which the House has in Delegate Tim Hugo’s House Bill 2529. There is no identified Senate GOP approach yet, other than a stated desire to prevent the state from keeping and spending the $1.2 billion produced by conformity over two years.
Just doing that is going to be complicated, because Governor Ralph Northam assumed all the new revenue when he drafted his budget amendments and spent all the money on popular items. When the Republicans produce their smaller budgets in a few weeks, the cry will go up they are hurting education, oppose employee raises, and want to kick granny off Medicaid, or some such nonsense.
We hate this play. Why do we let them stage it over and over?
The 2018 General Assembly was a lost opportunity to discuss conformity and comprehensive tax reform, as was the lingering special session that continued through the rest of 2018. The 2019 session is not opening with signs that the Assembly is prepared to move quickly, with Governor Northam and the Democrats adamant that conformity must come first to be followed by tax policy, and the Republicans all over the map on tax policy proposals.
Only one Democratic legislator, senior House Finance Committee Democrat Vivian Watts, has introduced a tax policy proposal that breaks the dam on the Democratic side. Her House Bill 2086 includes an increase in the standard deduction plus the Governor’s favored new income transfer program tied to the Earned Income Tax Credit (EITC).
Increasing the standard deduction, the centerpiece of a tax proposal by the Thomas Jefferson Institute for Public Policy, is the most popular tax reform element, appearing in ten of the 15 bills introduced so far to make income tax policy changes. Most propose to double the standard deduction to $12,000 for a joint return, but one (Senator Glen Sturtevant’s Senate Bill 1531) goes further and matches the new federal standard deduction of $24,000 for that couple.
Five of the bills mirror the Thomas Jefferson Institute proposal in full, including its proposed cut in the corporate income tax rate and is proposal to index Virginia’s tax code to future inflation. That package picked up the endorsement of the Virginia Manufacturers Association, having also been supported by the National Federation of Independent Business, Americans for Tax Reform and several conservative activist groups.
The smallest proposed increase in the standard deduction is in the Hugo bill, the GOP leadership bill, which hikes it only 33 percent. That bill is more focused on preserving the ability of Virginians to take itemized deductions on their state returns, even if they take the federal standard deduction. If they have local taxes above the new $10,000 federal cap on those deductions, they can ignore that cap.
That is the only bill of the 15 filed so far which lifts the cap on the local tax deduction, and one of only two which seek to preserve itemized deductions. No Senate bill enters that territory yet.
A game of chicken is now underway. The Republicans have agreed, it appears, that one way or another the windfall from conforming with the federal rules will not be plowed into the budget. And they are delaying the normally-routine legislation to conform to the federal changes until the Governor agrees to do tax reform in tandem. If negotiations are underway, they are sub rosa.
Figuring out your tax liability for 2018 with Virginia fully out of conformity, therefore using 2017 rules, will be a nightmare. A failure to agree on a budget that is signed by the Governor is also a terrible outcome, but these are midstream budget amendments, so a stalemate there does not produce the fear of a shutdown. The biggest and perhaps most essential amendments are hardly popular with Republicans – Medicaid spending increases.
The best outcome for Virginia is a tax policy bill that reaches a consensus including the Governor and is passed out by wide margins, quickly. The second-best outcome, with benefits for the Republicans, is a consensus bill they vote out and put in front of the Governor, forcing him to sign or veto it. He vetoes it and suddenly that paperwork nightmare you face in April can be placed on his doorstep. But that remains a very bad outcome for Virginia.
