Just a week after the hotly contested primaries in Virginia, where the more progressive candidates won in the Democratic primaries and where the Youngkin-endorsed candidates won in the Republican primaries — November was already bound to be an ideological battle for control of the Commonwealth. Now, to add fuel to this battle, voters in November will decide whether the progressive Democrats or Youngkin’s Republicans will control how to spend the $3.6 billion surplus that Governor Youngkin and the Democrats left on the table when they failed to agree on budget improvements. To put this in perspective, this is the largest three-year surplus in Virginia’s history.
Governor Youngkin’s failed budget, arguably a fairly moderate offering, included an extra $1 billion in tax relief and an offer to add funding for teachers and behavioral health specialists. Predictably, the Democrats believed the tax cuts were too much and the added spending was too little. Now, barring a call for a special session, both sides will get to make their case to the general electorate.
Virginia’s surplus is mostly due to inflationary wage increases — meaning wages increased to help worker income keep up with inflationary price increases. Thus, Virginians essentially overpaid by $3.6 billion for the budgeted services they received. Had policymakers taken Thomas Jefferson Institute’s advice to index deductions to keep up with inflation, the surplus would have been smaller, and taxpayers would have had more resources to cover the higher prices they were facing in the market. This would have made the employment numbers in Virginia even greater than we just reported.
When taxpayers overpay, the priority should be to give them their money back. Governor Youngkin’s tax relief next year should be much higher than the $1 billion he proposed this year. The best way to provide relief for taxpayers would be to index the standard deduction to inflation as is done in the federal tax code and to lower individual tax rates. Alternatively, the Governor could send out tax rebates directly to every taxpayer. A $3.6 billion surplus would make a sizable rebate, but would not address the issue of a tax code that doesn’t adjust for inflation or other wage disruptions. Finally, Virginia could lower its corporate income tax rate to be more competitive with other states. At a time when interstate worker migration is at an all-time low, being tax competitive is essential to attract businesses and workers.
The case for any added spending from this surplus is fairly weak. If you overpay at McDonald’s, you get your change back…you don’t get more burgers. Let taxpayers decide if they want to spend their surplus on education, mental health, green energy, etc. by giving them their money back. If Governor Youngkin is eager to spend on education, he should limit that spending to programs that give Virginians a greater choice in how they educate their children. Public schools have lost more than 35,000 students since 2019-2020. When multiplied by Virginia’s per-pupil state spending, this means public schools already have an extra $200 million without any added government spending. Coupled with the fact that test scores continue to drop in Virginia’s public schools, there is little reason to reward poor performance with any part of this surplus.
A much more focused debate on education is well overdue in Virginia. Any new State education spending should be on expanding Virginia’s Education Improvement Scholarships Tax Credits Program, creating Education Savings Accounts, and/or removing restrictions on Charter Schools or at a minimum, incentivizing localities to approve more public charters. But for November — the rallying cry over the $3.6 billion surplus should be, “Give it back.”
Derrick A. Max will become President and CEO of the Thomas Jefferson Institute for Public Policy on July 1. He may be reached at dmax@thomasjeffersoninst.org.
