Gilet Jaune
I keep wondering when the new French fashion rage, the yellow safety vest or gilet jaune, finds its way across the Atlantic. The next few weeks may provide some motivation in Virginia, because the General Assembly returns with financial pressures high and consensus in short supply.
Tuesday morning the 2019 General Assembly sees its opening ritual, with Governor Ralph Northam standing in front of the combined money committees to outline his financial plans. The speech is probably written, the cartons of printed budget bills probably on a truck heading for the State Capitol, and the on-line posting has undergone its final edit.
As is traditional, the Governor has recently enjoyed the role of Santa Claus, announcing various presents included among the hundreds of amendments – hundreds of millions in additional spending for the local public schools and teachers, a $50 million expenditure on rural broadband expansion with a promise for more in the future, plus a $140 million extra for water quality and wastewater treatment projects, again with a price tag that extends into future budgets.
This on top of his promise going back to August to create a new cash benefit for low-income working Virginians, those who qualify for a larger Earned Income Tax Credit than they owe in taxes. He is also talking about boosting the cash reserves to a full eight percent, with the amount of revenue needed for that not yet released.
These are all just amendments to the two-year budget that runs until June 30, 2020 – a budget that was signed just six months ago in June (several months late.) A news release from the House of Delegates GOP caucus last week pointed to the high cost of the Governor’s proposals, but conveniently ignored the other major cost driver staring at the General Assembly – Medicaid.
The GOP release then set the stage for what may likely be a stalemate on tax policy.
“Unfortunately, it appears much of the proposed spending is predicated on allowing over 600,000 middle-class taxpayers to pay higher taxes. Before we can contemplate new spending, the General Assembly will have to resolve the governor’s willingness to allow by inaction a tax increase and the elimination of key deductions on mortgage interest and property taxes.”
Brushing past the false statement that those deductions have been or will be eliminated, what that paragraph implies is the House Republicans will (as expected) push to allow Virginia taxpayers to claim them on their state taxes while taking the standard deduction at the federal level. The rule in Virginia has been that whichever way you go – standard or itemized deductions – it must be the same choice on both returns. Hence the word conformity.
With consensus, the General Assembly could move rapidly to conform Virginia’s rules to the Tax Cuts and Jobs Act, and find some way to return the $1.2 billion in not-yet-spent additional state revenue that provides over two years. There is no consensus.
House Republicans are looking to placate suburban voters with mortgages and substantial local tax bills, who may indeed pay higher state income taxes if nothing is done, or if the response is to boost the standard deduction. They are playing to their perceived base, as is the Governor when he proposes the cash EITC grants for people who now pay zero state income tax.
Somehow, I think the Virginians who fall in between will be most tempted to don a yellow vest and show up at the Capitol one day. They are the people who do pay income taxes but have been stuck with the same low standard deduction for four decades. People who rent their home pay the same real estate taxes, the same mortgage interest payments – just not directly. Their landlords get the deductions, not them.
The competing ideas – allow state-only itemized deductions, boost the standard deduction, create the EITC cash grants, just keep the money – create a scenario where each chamber passes a bill that its majority wants, Democrats get an EITC roll call to use in campaigns, and then it all goes into a conference committee to die. The final play may come at the Veto Session in April, when the Governor gets to legislate with his own amendments, so don’t expect an early resolution.
The GOP release ignored the business tax hikes coming. Once again, a major player in the coming poker game failed to even mention the business tax increases that also flow from a decision by the General Assembly to conform to the federal tax changes. As first reported here on Bacon’s Rebellion, the percentage of growth in corporate income taxes after conformity (40 percent or so) dwarfs the rise in personal income taxes.
One is continually told that neither the voters nor the businesses themselves care. It is hard to imagine a crowd rushing out of a Chamber of Commerce meeting and swarming Capitol Square like yellow jackets. It is easy to think instead of termites, quietly eating away at the tax code under the floor and behind the walls with little-noticed legislative tweaks.
Having been there under the floorboards myself, if I see something that the official news media is missing or failing to fully explain, I’ll let you know.
Just how this is going to work, going down there as neither lobbyist nor staff nor credentialed press, remains to be seen. The patience of readers is requested.
