Tax Conformity Bills Buried in Rules Committee

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.

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6 responses to “Tax Conformity Bills Buried in Rules Committee”

  1. LarrytheG Avatar

    Another great article full of facts and dead-on analysis!

    I don’t know much about how the General Assembly works but my guess is
    that they probably don’t have enough votes to override a veto.

    And I think that has to be a key point to any legislative strategy for the GOP – unless they can pull in a LOT of Dem votes – which is not out of the question if Virginians find out they’re going to get a tax hit and Dems are forced to line up also.

    I just received some instructions on how to process Virginia taxes this year for our clientele and it’s going to take a bit to figure it all out but the bottom line is that many folks who itemized Fed/State last year and can’t itemize the Fed this year, are going to see an increase in the State. How many that happens to and for how much will, no doubt, generate an outcry of some sort that the GOP can weigh in on to gain public support to fix it.

    As an aside, the Medicaid increase is the old Medicaid which Virginia must pay half not the expansion. That increase is not on the table for cuts unless Virginia wants to leave MedicAid altogether so that’s baked in.

    Northam has also proposed an increase in state health insurance credits for law enforcement would add $76 million in unfunded liabilities to two plans that already are funded at less than 10 percent of their long-term obligations, according to the Virginia Retirement System.”

    I suspect that will have the support of the public but who knows.

    1. Yes this is the interesting time.
      The people of Virginia do not realize yet that the GA is doing a clandestine tax hike. If they start doing their own taxes, they (the itemizers) are about to figure it out. I suppose so many people rely on others to do their taxes, they may never grasp the situation, and of course blue Virginia will mostly support the Gov’s tax increase stance. So it could just blow over, but there is a risk to elected officials of some blow-back.

      I should push through my 2018 numbers on TurboTax to make sure how it works, now the Va. forms are up.

  2. NorrhsideDude Avatar

    I absolutely think this is great. This year we may see some real tax increases for Virginians who were so ready to ride the blue wave. It’s no itemizing here, only a few $$$ a month on your electrical bill for a decade there, and only a pretty big we miscalculated Medicare costs here, our Senators want to get rid of Trump’s tax cuts there, etc… Then once they have jacked the taxes up, we’ll find it has crushed the middle class again, so what we’ll need is to raise the taxes on the “rich” some more…
    I love it. I hope leftist (not necessarily liberal) voters have all their dreams come true.
    Resist to the ends of earth and down with those who dare become sucessful! Don your pink hats and crush the evil corporations who have laid Lululemon, iPhone, reliable electricity, combustion engines, and the patriarchy at your feet!

  3. LarrytheG Avatar

    Well, sure, If Virginia could just give tax cuts and put them on long term debt like Trump and company did and heckfire – we don’t even call those folks who are financing those tax cuts with debt from China – “leftists”.

    So Trump is adding billions to the debt we are giving to our kids and getting Kudos for the “tax-cuts”? hmmm.. Oh wait.. the increased revenues are going to pay for those cuts and then some – some day, right?

    1. NorrhsideDude Avatar

      I agree the Trump tax cuts without spending reductions are BS.
      What I love is the blue wavers are potentially going to see that their ideas will cost real money. That’s all. If they want all these free programs I hope they are willing to go all in Scandinavian-like and give up 50% more of their income to taxes.
      Personally I could care less. I think it’ll be great to seee rich Wypipo suffer with no Starbucks, Apple, and to have their over-financed houses get crushed in the next bubble…

  4. Some of us are going to get hit. I paid off 4 credit cards last year. I don’t eat out, do as much of my own work around the home and car and yard as I can. I spent a few ground on the house, looking to do that again this year. I won’t be able to afford but a 2 day trip to Richmond and one to Lynchburg for the same amount of time this year. I’m paying off a 5th credit card. All I get is more and more screwed for people who don’t pay in taxes.
    I won’t vote for that MD in office. He has no clue about taxes. I doubt he knows his MD well.

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