The governor wants to cut income taxes and raise sales taxes to fund his budget proposal
Virginia Governor Glenn Youngkin has unveiled his second State of the Commonwealth speech before a joint session of the state legislature, where he outlined his vision for the next two years. One of the main themes of his speech was his tax reform plan, which he said would provide relief to middle-class Virginians and diversify the state’s tax base.
What is Youngkin’s tax plan?
Youngkin’s tax plan includes a 12% reduction of all income taxes, with a top rate of 5.1%. He said this would lower the cost of living for many families and businesses, and make Virginia more competitive with other Southern states that have lower or no income taxes.
To offset the estimated annual revenue loss of $2.3 billion, Youngkin proposes increasing the state’s sales tax rate from 4.3% to 5.2%, including a provision that would close the so-called tech tax loophole on digital goods that are currently classified as tax-exempt services. This means that Virginia would start taxing online music downloads from platforms such as Apple Music if the General Assembly approves the proposal.
Youngkin also wants to expand the earned income tax credit for low-income Virginians, which he said would help them escape poverty and achieve economic mobility.
How does Youngkin’s tax plan compare to previous proposals?
Youngkin’s tax plan is similar to his first biennial budget proposal that he introduced in December 2023, which also called for a 12% reduction of all income taxes and an increase in the sales tax rate from 4.3% to 5.2%. However, his latest proposal adds some details and clarifications that were not included in his earlier version.
For example, Youngkin said he would use some of the savings from cutting income taxes to fund education programs, such as teacher pay raises, school construction, and scholarships for students. He also said he would use some of the revenue from closing the tech tax loophole to support broadband expansion and rural development.
Youngkin also emphasized that his tax plan is not a one-size-fits-all solution, but rather a package deal that requires compromise and cooperation from both parties in the legislature.
What are Democrats’ reactions to Youngkin’s tax plan?
Democrats, who will control both chambers of the General Assembly when they convene for their 2024 session next month, have expressed strong opposition to Youngkin’s tax plan. They said it would hurt low-income Virginians who already struggle with high costs of living and health care expenses.
Senate Majority Leader Scott Surovell said there is a “pretty strong sense” in his caucus that they are not cutting income taxes for people who make lots of money. He also said they are not willing to raise sales taxes on essential goods such as food and medicine.
House Appropriations Committee Chairman Luke Torian said Democrats appreciate Youngkin for sharing his budgetary vision, but they need more information and analysis before they can evaluate it. He said Democrats will work with Republicans on crafting a budget that reflects their dedication to prosperity and fairness for every resident in Virginia.
Youngkin has vowed to veto any legislation that does not include his preferred revenue-raising measures or spending cuts. He has also challenged Democrats to take up and resolve any issues related to his budget proposal during this session.
