Virginia is no exception. Leading up to the 2021 election the Commonwealth had been named the best state for business two years in a row with tax policy being a major consideration to receive such a recognition. A “rainy day” fund was in place and additional reserves were being maintained to stave off any dips in revenues. Regardless of these facts, the winning candidate had promised in his campaign several tax cuts if elected. Among those were doubling the standard deduction on the income tax, eliminating the remaining grocery tax, suspending the gas tax, and providing a tax holiday for small businesses.
During the campaign, then-candidate Glenn Youngkin floated the idea of eliminating the income tax. To his credit when he learned that it would wipe out around 70% of the state’s general fund and bankrupt state government he quietly dropped that proposal. It’s one of those details that must be considered when discussing tax policy and which voters need to carefully examine when they hear a “too good to be true” promise.
The General Assembly has not been able to agree to a final budget for the next biennium with the issue of taxes being the main hang-up and the Governor not being able to justify his proposals against the details of taxes and where the money goes. Everyone I know opposes a tax on groceries, and that is why the General Assembly cut the grocery tax with the exception of one and a half cents for education and transportation. For many rural areas with a limited tax base, groceries and gasoline were about the only items that could be taxed to provide some funding for their schools and roads. If the decision is made to cut the gas tax the responsible thing to do is to make up the losses to the small localities with state general funds that are currently going to other programs.
Another detail about the proposed gasoline tax that must be considered is the analysis of the Institute on Taxation and Economic Policy (https://itep.org/) that shows that 30% of the projected savings would likely flow to oil producers rather than motorists. Less than 30% the analysis found would go to Virginia residents, with the remainder going to trucking companies that buy a lot of gas in the state and out-of-state tourists who visit the Commonwealth.
The same organization looked at the proposal to double the standard deduction on the income tax and found that it would not help many Virginia families whose income is already too low to be taxed. Only high-income earners who have the least need for a tax break would benefit from this proposal.
The devil is in the details as is the case in many proposals, and the Governor needs to consider those details and give the General Assembly the opportunity to pass a responsible budget.