It is time for further tax relief and investment.

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Gov. Glenn Youngkin should call a special session of the General Assembly to ask for tax cuts. 

From Cardinal News. By Joe McNamara.

It doesn’t take an economist to know that inflation is still causing pain for Virginia families: a trip to the grocery store is more than sufficient. But some numbers demand discussion.

Recently, the U.S. Department of Labor released inflationary figures for April 2023. The month’s increase of 0.4% (about a 5% annual rate) reflects just how difficult it has been for the Federal Reserve to achieve a 2% annual inflation target through monetary policy. Inflation, which reached a 40-year high of 9.1% in June 2022, is responding slowly to Fed action. The Consumer Price Index and other data points lead market watchers to expect an 11th consecutive increase in the target rate for Fed Funds Rate, bringing the upper target to 5.5%.

How did we get here?

To answer this question, one needs to look squarely at the federal government. In the past three years, Congress has literally dumped trillions of dollars into our economy. Demand swelled while labor force participation declined. Eviction moratoriums, enhanced unemployment payments and expanded government support for healthcare, rent and food made the necessity of having a job a little less important to many citizens.

The resultant labor shortage pushed up wages at the fastest clip since the early ’80s and the cost to produce a product or deliver a service saw corresponding increases. Home prices, rents and a trip to the grocery store left Americans shaking their heads and worrying what comes next.   The Federal Reserve seemed almost powerless compared to the tremendous impact of COVID-19-directed fiscal stimulus. The sad part of this story is that anyone with an ounce of sense could have foreseen our current predicament.

Congressional actions often have winners and losers. While our country as a whole is clearly a loser, state and local treasuries are among the winners. Growth in state and local government revenues (both tax receipts and federal grants) have made politicians giddy with excitement. All too often, they are more than happy to spend their windfalls, albeit sometimes with some token tax reduction, but always with a statement congratulating their fiscal prowess.

In Virginia, we can and have done better.

In the two budget years since COVID struck, Virginia experienced a 36% increase in state revenues. Our leaders, in crafting our current two-year budget, were committed to put the brakes on this growing burden, and protect our citizens and business.

While great efforts were expended to conservatively forecast revenue, equally great efforts were made in 2022 to return nearly $4 billion of surplus tax receipts to our taxpayers. Republican and Democratic legislators united in a bipartisan effort to keep Virginia affordable.

We are now 10 months through the first year of the two-year budget adopted last year, and it is evident that we will achieve and likely exceed our original forecasted revenue by as much as another $2 billion. With enhanced revenue clarity, Gov. Glenn Younkin has provided proposals to change our second budget year to enhance mental health treatment, improve funding for schools and police and, yes, provide Virginia with an additional $1 billion of tax relief.

His proposals passed through the Republican House, only to fail in the Democratic Senate.  Because of the two-year cycle, Virginia has a budget for the new fiscal year and because of the continued revenue surge, the modest tax cuts for the second year that never passed remain easy to accomplish with no need to cut spending.

In fact, second year spending will grow. Now that Congress seems to have gotten its act together, at least a bit, what is the reason for the continued delay in Virginia?

Gov. Glenn Youngkin should call the General Assembly back into session and encourage us to find common ground. I believe we are up to the challenge, and our citizens deserve no less.  The argument that Virginia cannot afford both strategic investment and tax relief simply does not hold water.

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House passes Del. McNamara’s tax relief bills

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The House passed the bills to lower the top income tax rate and business taxes. Meanwhile, a Senate panel approved a bill by state Sen. David Suetterlein to prevent political leaders from manipulating the timing of special elections. 

From Cardinal News. By Markus Schmidt. January 24, 2023

The George Washington statue in the state Capitol. Photo by Markus Schmidt.

RICHMOND – The House of Delegates on Tuesday passed two of Gov. Glenn Youngkin’s signature tax relief proposals, both sponsored by Del. Joe McNamara, R-Roanoke County.

House Bill 2319, which would lower the top income tax rate from currently 5.75% to 5.5% starting in 2024, which Republicans said would save taxpayers more than $1 billion in its first two years, passed the body by a 52-48 party-line vote. Additionally, the bill would raise the standard deduction to $9,000 for single individuals and $18,000 for married couples, saving the average Virginia family earning $75,000 approximately $114 annually.

The second measure, HB 2138, would lower the state’s effective business tax rate from 6% to 5%, saving Virginia businesses about $300 million annually. The bill also allows for new deductions for small businesses, providing an estimated relief of more than $275 million over the next two years, according to House Republicans. It passed by 52-47.

“Virginia isn’t just in a competition for more jobs, we’re in a competition to retain our current residents and to attract others to our commonwealth,” McNamara said. “Americans are more mobile than ever, and if a family decides they can do better for themselves in another state, they will move, as recent Census data illustrates. These long-term tax changes will make Virginia a more attractive choice as people search for a place to live, work, and raise a family.”

Youngkin hailed the legislation as a “major step forward on tax relief” for Virginia families and businesses.

 

“Virginians are still overtaxed, they deserve to keep more of their hard-earned paychecks, and today’s significant move by the House of Delegates means Virginians are one step closer to additional relief,” Youngkin said in a statement.

The reductions in individual income tax mean 86% of taxpaying Virginians would enjoy the benefits of a lower top tax rate and an additional 14,000 Virginians will pay no state income taxes, Youngkin said, adding that the reduction of tax rates for business would result in lower taxes for about 475,000 resident small business owners and local businesses across the commonwealth.

“Reinvigorating Virginia’s tax structure will help make the commonwealth competitive with other states so that we can compete to win,” Youngkin said. “We proved last year (that) tax cuts don’t have to be a partisan issue.”

Both proposals are now headed to the Senate, where Democrats hold a 22-18 majority. But after working with Republicans in 2022 in providing a historic $4 billion in tax relief – including eliminating the state’s 1.5% of the grocery tax – Democrats are unlikely to support Youngkin’s push for an additional $1 billion in tax cuts for individuals and corporations.

Last week, a Democratic-controlled Senate panel killed Senate Bill 850, sponsored by Sen. David Suetterlein, R-Roanoke County, that would have slashed the remaining 1% of the tax that benefits local governments to fund schools, repealing the tax altogether.

And on Tuesday, House Democrats accused Republicans of “jamming through their tax bills, which benefit big corporations and the wealthy,” while “leaving Virginia families and small businesses in the dust.”

Instead, Democrats said that they have tried to get Republicans to “come to the table” on a plan of their own, one that would “immediately give more relief to the hardworking Virginians” at less cost to funding essential services.

“The Republican tax bill is a giveaway to corporations – which will either mean tax hikes for families or deep cuts to services,” Del. Don Scott, D-Portsmouth, the House minority leader, said in a statement.

“The Democratic tax bill gives cuts to families and provides immediate relief to people feeling soaring costs. That’s because Democrats prioritize families, and Republicans prioritize corporations and the wealthy,” Scott said.

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