Will Yellow Jackets Come To Richmond?

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.

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2 responses to “Will Yellow Jackets Come To Richmond?

  1. France and America share a lot in common, not just with each other but with the U.K., Italy, and even Germany, where politics are roiled by the revolt against the cultural/political elites. The inherent contradictions of the liberal-democratic-market-welfare model adopted by the “western” democracies are becoming more acute. As fiscal pressures mount, policy options narrow, and countries become increasingly ungovernable.

  2. re: “….. cultural/political elites. The inherent contradictions of the liberal-democratic-market-welfare model adopted by the “western” democracies” Good Lord… Europeans love their health care and train system..they just don’t like paying for it!

    But HEY – if you wanted to see REAL rioting in the streets, tell the French or Brits or Germans that they’re gonna convert their health care to the “free market” American model!

    re: voters and businesses “don’t care” about Virginia taxes. Well they care but most voters don’t really see it in their faces until they get nailed at tax time while businesses usually are more proactive and show up at the GA to jawbone and they will in force at this GA… count on it.

    The thing that impresses me about Northam is that he and his team has actually thought about all this stuff – in their first year!

    He’s not likely to get everything he wants but you gotta give him and his team credit – they do have a plan and it DOES include fiscal attention to Virginias cash reserves that have been neglected. Gonna be hard to oppose that!

    I’m trying to remember the last time taxpayers revolted in the streets in the US or Virginia… I just don’t think we do that in this country. We show up at elections for sure but usually the street stuff has to do with social issues.

    The GOP in Virginia is actually in a precarious political position because of the ire over health care which almost turned the GA over to the Dems and looks like it affected the Congressional elections also.

    They’re going to have to come up with a position that not only caters to their base but peels off independents and dems and that’s going to require some careful strategy of which I would have to be convinced they’re capable of given their recent performance for the US Senate.

    People want education and health care… neither of them can be on the list of stuff the GOP wants to cut/gut. They can and should argue for lean and cost-effective programs – fiscally conservative programs but they cannot just oppose them carte-blanche because of the “budget”. I think Northams team is skilled politically.

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