In his final budget bill, departing Governor Ralph Northam (D) proposed a one-time rebate of just over $1 billion to Virginia income-tax payers, and additional policy proposals that would cut another $1.1 billion in state revenue for the remainder of this fiscal year and the next two.
New Governor Glenn Youngkin (R) has now seen and raised Northam’s stakes, proposing an additional $2.9 billion in rebates or tax cuts for the first half of his term. The vast majority of his proposal, $2.1 billion, represents the tax break created by doubling the individual standard deduction.
The figures come from a review of the introduced Northam budget prepared by the legislative money committee staffs, and Youngkin’s recently-released summary of his high priority legislative agenda. That list from the new governor includes the tax bills and related budget amendments, which track and now put price tags on the various promises he made during his campaign.
The General Assembly now in session could approve both tax cut lists, a total of $5 billion in tax relief, most of it (because of the one-time rebates) in fiscal year 2023, which begins July 1. In four weeks, on February 20, the House and Senate money committees will reveal their versions of the budget and which of these proposals made the cut.
Youngkin’s amendments are made to the Northam budget document, and he is assuming that many of the Northam proposals are adopted. Northam’s major proposal was the one-time rebate of $250 per taxpayer from state surplus revenue, which he estimated would return a total of $1.05 billion. Youngkin’s campaign promise was for $300 ($600 per couple), so he adds another $202.8 million for a total rebate of about $1.25 billion.
Here are the proposals that came from the governors, with links for more detail and actual bill language. Plenty of other tax cut proposals are pending in the General Assembly, but these are the ones to watch.
From Governor Northam:
Northam’s proposed income tax rebate of $250 per individual or $500 per couple would be paid sometime after July 1, 2022. Value to taxpayers: $1.048.6 billion.
The accelerated sales tax rules which have forced businesses to remit July receipts in June to pad the ending fiscal year’s income number will end. The state books show that as a loss of about $203 million to the current fiscal year, FY 2022. Taxpayers actually save nothing, as the only issue for them is timing.
Northam proposed full conformity with the Internal Revenue Code, which places into Virginia’s tax system all the rule changes coming from Congress or Internal Revenue Service decisions since last year. That means Virginia will not tax the 2021 federal Paycheck Protection Program (PPP) funds that businesses received, another Youngkin promise. Last year Northam took the position that those funds for 2020 were taxable, which sparked a major legislative battle.
Value to taxpayers of the conformity decision: $159 million in this fiscal year (mainly from not taxing PPP), and $35.6 million in each of the subsequent years.
Northam also proposed a refundable Earned Income Tax Credit starting with this tax year. The current state EITC allows low-income workers to lower or eliminate their tax liability, but his proposal would allow an actual grant from the state if the EITC amount was larger than the tax liability. Northam’s proposal would pay out $159 million in Fiscal Year 2023 and $156 million in Fiscal Year 2024.
Finally, picking up on a promise from his own 2017 campaign that Youngkin repeated, Northam proposed removing the state 1.5% sales tax on groceries starting July 1 of this year, with the additional 1% local tax disappearing July 1, 2023. Value to taxpayers: $106.2 million the first year and $252.3 million the second. (An amount probably set before grocery prices started exploding.)
From Governor Youngkin:
Youngkin’s version of the tax rebate to individual taxpayers is $300 per person and $600 per couple, adding $202.8 million to the one-time payments. It also appears the taxpayer will get it upon filing their 2021 taxes, as an additional refund amount (but they are only eligible for a rebate is they owe at least that much in tax.)
His proposal to double the standard deduction taken by individuals who do not list itemized deductions is the big ticket item. As previously mentioned, that would reduce income tax revenues by $1.24 billion in Fiscal Year 2023 and $852 million in the second year, Fiscal Year 2024. Another version of the bill is here.
During the campaign it was not clear just what Youngkin had in mind as he promised a tax break for small business. Now this bill (and this one) spells out which companies or individuals would qualify for a one-year break on their state income tax returns, but sets a $75 million cap on the tax relief available in Fiscal Year 2023. If too many folks qualify, the tax relief may be prorated.
His proposal on the sales tax on groceries can be found in this Senate and this House bill. His budget amendments do not alter what Northam had estimated as the fiscal impact. His version of the IRS conformity bills are here and here, again with no fresh budget amendment to adjust the fiscal impact.
A substantial fiscal impact will result from Youngkin’s campaign promise to create a state income-tax exclusion for military retiree pay, with House and Senate versions. His budget amendments put the taxpayer value at $287 million in Fiscal Year 2023 and $228 in the next year.
Youngkin also promised a break on motor fuel taxes in a budget amendment, not a bill. His campaign rhetoric indicated a roll-back of taxes already imposed, but his proposal now is also forward-looking, delaying a scheduled increase tracking the inflation rate. No budget amendment indicating a fiscal impact was proposed, but a story in the Richmond Times-Dispatch cited about $200 million less revenue.
So. the Youngkin proposals accept most of what Northam proposed and build on it, with one exception. The Youngkin news release Friday is silent on the proposal to create a refundable Earned Income Tax Credit, with no yea or nay indicated. It also does not mention restoring to the revenue stream the money that would be paid out as refunds should the Northam proposal, popular with many Democratic legislators, become law.
Finally, Youngkin keeps his promise to require local government referendums on real estate tax increases with this House and this Senate bill. The voters would be asked to approve if the proposed new tax amount based on the reassessed values and proposed tax rate would be more than one percent above the amount collected the previous year. The attached fiscal impact statement makes no effort to estimate how many such local plebiscites would occur annually. You can assume it would be many.