RICHMOND, Va. (WRIC) — Virginia lawmakers are drawing battle lines in a looming budget fight with tax relief at the center. Targeting relief towards individuals, rather than corporations, is likely to be a starting point during closed-door negotiations.
Over the weekend, House Republicans and Senate Democrats released spending plans with very different visions.
Unlike last year, when some overlapping proposals resulted in a $4 billion dollar tax relief compromise in the two-year budget, the new Senate plan entirely rejects Governor Glenn Youngkin’s $1 billion package of additional amendments. Republicans are confident that some elements of Youngkin’s tax relief plan will emerge from negotiations but, at least so far, Democrats aren’t conceding.
“We’ll see at the end of the day but we’re quite adamant right now that these are not going to happen,” Senate Finance and Appropriations Committee Co-Chair Janet Howell (D-Fairfax) said in a recent interview. “There is no reason to give more benefits to corporations when families could use some help.”
Youngkin wants to cut the state’s top individual income tax rate, which the vast majority of working Virginians pay, from 5.75 percent to 5.5 percent, but critics argue that won’t help the lowest income earners.
In an interview on Monday, House Appropriations Committee Chair Barry Knight (R-Virginia Beach) said his top priority will be further increasing the standard deduction to $9,000 for individuals and to $18,000 for married couples filing jointly. Currently, the standard deduction sits at $8,000 and $16,000 respectively after lawmakers nearly doubled it last year, despite initial resistance for Senate Democrats.
“The standard deduction helps the lower income people first. We moved the needle a lot last year but we could move it a little bit more this year, so the standard deduction would be the first thing I believe we can probably compromise on,” Knight said. “I think I understand some of the consternation from the Senate but everything is a budget negotiation and we are going to ask for some tax relief. I don’t know if we’ll get it all, but we’ll certainly ask for it.”
After a Senate panel shot down several tax relief proposals last week, Senate Republican Leader Tommy Norment (R-James City), who voted in favor of the bills, predicted that the push to decrease the corporate income tax rate from 6% to 5% would have “much more of an uphill climb” during negotiations, as it has proven to be more controversial among Democrats.
“I just think reducing the corporate tax is going to be more challenging and there hasn’t really been a ground swelling from the business and corporate community in Virginia to do that since the bill has been introduced,” Norment said.
Norment also anticipates that increasing the standard deduction and decreasing the top individual income tax rate has a better shot of ending up in the budget deal. One Democrat, Sen. Chap Petersen (D-Fairfax), sided with Republicans and voted against a motion to kill that bill in committee.
The Senate plan also leaves out Youngkin’s proposed tax break for certain small businesses and an effort to expand a tax break for veterans by removing an age limit. It also reduces Youngkin’s proposed deposit into a “Taxpayer Relief Fund” from $128 million to $75 million.
Rather than cutting taxes, the Senate budget includes roughly $637 million more in additional, direct aid for local public schools compared to the House plan, according to a budget breakdown from The Commonwealth Institute for Fiscal Analysis. The comparison shows the Senate plan prioritizes larger investments in additional support staff, reading specialists, instructors for English learners, and funding for high-poverty school divisions.
“What we’re doing is we’re sending a message to Virginians that education is a priority for all of us,” said Senate Finance Appropriations Committee Co-Chair George Barker (D-Fairfax). “We have already addressed a lot of the tax issues. We felt that what we needed to do now is to make sure that we are providing adequate funding for the services that Virginia needs.”
Both the House and Senate budgets include an additional 2 percent raise for state employees and teachers for a total of 12 percent over two years. The bump was not included in Youngkin’s budget amendments.
In a statement on Sunday night, Governor Youngkin said:
“When I presented my proposed budget amendments in December, I said we needed to lower taxes to make Virginia more competitive for families and businesses, invest more in education to help children recover from learning loss, invest more to recruit 2,000 new law enforcement heroes, and take a major first step in transforming our behavioral health system. Those are still our goals, and I look forward to reviewing today’s proposals from the House and Senate. I am confident that working together with Chairman Knight and Co-chairs Howell and Barker, we can get the job done for Virginians.”