*This article originally appeared on CardinalNews.org
With the Virginia General Assembly now in session, the grappling over Gov. Youngkin’s “Unleashing Opportunity” tax plan has begun. Already, opponents are attacking it as “regressive” and “dead on arrival” — even supposed allies are less than enthusiastic about its prospects for passage in its current form. This opposition and lack of full partisan support is likely due in part to the governor’s poor rollout which was ably described by Thomas Jefferson’s Steve Haner, but this plan is not only worthy of a closer look, I believe it is a plan that deserves broad bipartisan support!
As background, Gov. Youngkin’s tax-cutting credentials are without question. Over the first two years of his administration, Gov. Youngkin has managed to return over $5 billion to citizens of the commonwealth through big increases in the commonwealth’s standard deductions (from $9,000 to $16,000 for couples), tax rebates ($900 for couples over two years), reduced taxes on groceries (dropped from 2.5% to 1%) and recognition of the refundable Federal Earned Income Tax Credit.
These tax reductions were accomplished by the governor’s effective management of Virginia’s budget and economy. Secretary of Finance Stephen Cummings, in his Review of General Fund Revenue and the Virginia Economy for Fiscal Year 2023, points out that Virginia’s labor force participation is at its highest since 2012 with almost 220,000 more Virginians employed now than in January of 2022.
This increase in the tax base adds substantial revenue to the commonwealth’s coffers. The review also shows that Gov. Youngkin has been able to meet legislative objectives while spending substantially less than was appropriated. In fact, in FY 2023, unspent appropriations equaled $1.6 billion.
The impact of strong employment and underspending is that the commonwealth is once again facing substantial surpluses. The commonwealth’s general fund revenue exceeded the December forecast by $1.45 billion, which is in addition to the $3.6 billion general fund balance that was available for appropriation in the December budget. This provides a strong foundation for rethinking the commonwealth’s tax code as envisioned by Gov. Youngkin, which would shift revenue collection away from income taxes and towards sales taxes.
Specifically, Gov. Youngkin is seeking to reduce income taxes by 12% and increase the sales tax by 0.9%. Eighty percent of the cost of this shift would be paid for by a fairer application of sales taxes to put digital streaming and downloaded products on the same level as tangible products purchased in stores — a change that 22 other states have already made.
The Tax Foundation’s analysis of Gov.Youngkin’s plan noted, “Sales taxes are less economically harmful than income taxes, so reducing reliance on the income tax, partially offset by sales tax modernization and rate increases, can help enhance Virginia’s overall tax competitiveness.” Overall, this plan is a net tax cut equal to $589 million and will improve Virginia’s competitiveness with its neighbors like North Carolina and West Virginia. The Wall Street Journal editorialized in favor of Gov. Youngkin’s tax plan.
The charge that Gov. Youngkin’s tax plan is “regressive” ignores the fact that Virginia’s income tax kicks in at the relatively low income of $25,000 — meaning cutting the rate to these taxpayers would be a huge boost. Furthermore, with Virginia’s reduction of the sales tax on groceries and necessities to 1% last year, the main budgetary categories of low-income Virginians are either not impacted (rent and energy) or only marginally impacted (groceries). Also, Gov. Youngkin has proposed to allow low-income Virginians to claim an enhanced Earned Income Tax Credit, equal to 25% of the federal EITC. Finally, Gov. Youngkin is calling for the elimination of the much-hated “car tax” which is by far one of the most regressive and administratively complicated taxes in the commonwealth. Ending this tax will help low-income workers buy cars to get them to and from work, or increase their options of places to work.
Overall, Gov. Youngkin’s plan would reduce the penalties to work, increase the incentive to save, fix inequities in taxes between digital and tangible products, boost low-income tax credits, end massive surpluses, and make driving more affordable for all. In short, this is a plan that would truly unleash opportunity and is one we should all support!
Derrick Max is President and CEO of the Thomas Jefferson Institute and can be reached at email@example.com.