Governor Youngkin presented his budget amendments to the Joint Money Committees yesterday. The speech was filled with budget amendments to reduce taxes and fund new or existing programs. These tax cuts and additional spending proposals were made possible by Secretary of Finance Stephen E. Cummings’ report that the Commonwealth was again sitting on massive surpluses.

Specifically, Secretary Cummings reported that General Fund revenues have reached a record high, well above original forecasts. 

When combined with FY24 surplus revenues, year-end agency balances, and other revenue, the Commonwealth has a current and projected surplus of $4.7 billion. The forward-looking revenue projections are driven by continued strength in employment and wages.

Setting aside that this means Virginians have again been severely overtaxed, Governor Youngkin proposed several amendments that have been top priorities of the Thomas Jefferson Institute for a long time.  Below is a quick summary of those proposals based on what we know so far.

Extending the Increase in the Standard Deduction. Governor Youngkin proposed extending Virginia’s increase in the standard deduction which is set to expire in 2025. The 2024 & 2025 standard deduction is currently $8,500 for single filers, and $17,000 for married filing jointly. If the increase isn’t extended, the standard deduction will fall back to $3,000 for single filers and $6,000 for married filing jointly. This would result in a massive tax increase for most Virginians and have broad negative economic impacts. 

Our support for the increased standard deduction was most recently spelled out in Steve Haner’s “Doubling Standard Deduction is Middle Class Tax Reform.” In this article he pointed out that unlike other tax provisions, like the Earned Income Tax Credit, the increase in the standard deduction is a tax cut that benefits middle income taxpayers. This is surely part of the reason for the strong economic growth shown in the chart at the top of this article.  

The Thomas Jefferson Institute led the charge for this increase and it has had the benefits we predicted. Extension of this increase should have broad bipartisan support!

Virginia Opportunity Scholarships. Governor Youngkin outlined a $50 million Opportunity Scholarship program providing $5,000 grants to up to 10,000 low-income students to fund tuition, fees, transportation, uniforms, textbooks and other expenses needed to attend a private school. 

Wisely, these scholarships can be added to the Education Improvement Scholarships that some of these low-income students may already receive. This will greatly enhance the educational opportunities of Virginia’s low-income students, many of whom are continuing to fall behind as was outlined by Chris Braunlich in his recent article, “Shine a Light on It” — a must read for anyone worried about the plight of Virginia’s low-income, and minority students.

As Braunlich’s points out from the most recent report from the National Assessment of Educational Progress (NAEP), Virginia’s low income and minority students are significantly behind!

Opportunity scholarships are not just an education policy issue; they are a critical civil rights issue. For decades, low-income students, disproportionately students of color, have been trapped in schools not meeting their needs. These students are denied the opportunity to find a private school that may be better suited for their needs – an ability widely available to students from wealthier families.

Opportunity scholarships acknowledge the fundamental right of every child, regardless of their zip code or socioeconomic background, to access a quality education. By providing a means to escape schools not meeting their needs, these scholarships empower students with the chance to fulfill their potential.

Denying children access to a quality education based on their circumstances is a form of educational redlining, a modern-day manifestation of segregation. Just as the civil rights movement fought for equal access to public spaces and voting booths, the fight for greater educational opportunity is a fight for equal access to a quality education. It is a fight to ensure that all children, regardless of their race, ethnicity, or socioeconomic status, can reach their full potential and achieve their dreams. Governor Youngkin’s proposal for Opportunity Scholarships is an important first step — laser focused on students most in need, and should be broadly supported.

Reducing the Car Tax for Low Income Families. Governor Youngkin proposed a “car tax credit” — a permanent, refundable, income tax credit equal to the amount of local property tax paid on personal-use vehicles, up to $150 ($300 if married filing jointly). This credit would be limited to low-income taxpayers making less than $50,000 ($100,000 if married filing jointly). 

It is estimated that this credit would eliminate the car tax burden for one car owned by a working-class family. Interestingly, the credit is limited to Virginians living in jurisdictions where the tax credit is not increased by more than 2.5 percent annually.

The Thomas Jefferson Institute recently wrote “It’s Car Tax Day, Let’s Move Forward on Governor Gilmore’s ‘No Car Tax’ Pledge.” This article points out the many reasons the car tax is the most hated tax in the Commonwealth. Virginians pay the highest car tax rate in the country, with an average effective rate of 4.05% and an average annual bill of $1,011. The tax is calculated differently by each locality, is economically inefficient, encourages tax avoidance, and is administratively complex. 

While Governor Youngkin’s proposal does not eliminate the car tax, tackle the variations by tax district, or reduce the economic inefficiency caused by the tax, it is an important second step — building on the earlier reduction passed by then Governor Gilmore.  

No Tax on Tips. This is not something on which the Thomas Jefferson Institute has opined, and probably not at the top of tax reductions or reforms we would propose. However, exempting income from taxation by more than 250,000 Virginians in the food service, personal service, and hospitality industry is something that advances prosperity and opportunity and is worthy of our support. 

At a cost of only $70 million when fully implemented in FY27, this proposal will benefit mostly lower-income workers and will make Virginia the first state to pass such legislation to align with a similar change supported by both Presidential candidates and now being proposed at the federal level.

While the rest of the amendments proposed by Governor Youngkin are a mix of additional tax reductions or reforms, and a bevy of new and increased spending programs, three of the four amendments outlined above align closely with the Thomas Jefferson Institute’s policy goals, and the fourth wisely keeps money in the hands of hard working Virginians.  

Derrick Max is the President and CEO of the Thomas Jefferson Institute for Public Policy. He can be reached at dmax@thomasjeffersoninst.org.