(The Center Square) – Before leaving the governor’s office in mid-January, Virginia Gov. Ralph Northam plans to include tax breaks for low-income businesses and residents in his two-year budget proposal, he announced on Tuesday.
Northam is proposing four changes to Commonwealth tax policy – ending the tax on groceries, reducing income taxes for low-income families, offering one-time tax breaks to every Virginian with excess money from the ‘State and end the accelerated sales tax on payments for retailers.
“When Virginia cuts taxes next year, it should be done in a way that benefits workers,” Northam said in a statement.
“Many professionals have survived the pandemic well because their work has just moved online,” Northam said. “But workers haven’t been so lucky when their jobs require close contact with other people. Some jobs just can’t be transferred online (restaurant workers, early childhood educators, home care attendants, and more) and we all depend on the people doing that work. Virginia can help workers by eliminating the state tax on groceries, offering one-time discounts, and giving tax relief to those who work.
Currently, Virginia has a 1.5% tax on groceries. Most states do not tax groceries and, according to the governor’s office, the tax is regressive, meaning it disproportionately harms low-income households. The governor supported removing the tax on groceries and said the state’s current economic strength now makes it possible.
The governor intends to make 15% of the federal earned income tax credit refundable to low- and middle-income families. This would allow eligible families to get reimbursement from the state if they earn money below a certain level. The amount of reimbursement would depend on income level, marital status and family size.
The economic growth rebates would return some of the state’s excess money to taxpayers by returning them money on their taxes. The one-time reimbursement would be $ 250 for individuals and $ 500 for married couples. The state offered lower tax cuts in 2019: $ 110 for individuals and $ 220 for married couples.
Accelerated Sales Tax for Retailers requires retailers to prepay sales taxes before collecting any revenue. Ending the policy, according to the governor’s office, would prevent retail businesses from digging into their own pockets to pay sales tax, which has placed a burden on retailers since its enactment more than a decade ago.
Some of the tax proposals reflect the priorities of Governor-elect Glenn Youngkin who will take over when Northam leaves in January. The governor-elect has said he intends to end the tax on groceries, return excess money to taxpayers and reduce the tax burden on families and businesses. However, Northam’s plan does not increase the standard deduction, which is a proposal by Youngkin that would offer deeper tax cuts.
Although Northam will propose the budget, the final budget will have to pass the new General Assembly and be signed by Youngkin. Republicans gained tight control of the House of Delegates in the November election, and Democrats will retain tight control of the Senate. There were no senatorial elections this year.
President-elect Todd Gilbert, R-Shenandoah, issued a statement in support of tax cuts and suggested that Northam’s proposals are a departure from his usual agenda.
“Now we know what it takes for Democrats in Virginia to propose tax cuts – losing to a Republican,” Gilbert said.
Stephen Haner, senior researcher in national and local tax policy at the Thomas Jefferson Free Market Institute, told The Center Square that the surplus was in part because leaders raised taxes in the first place. He said the state needed to cut taxes, but said Northam’s proposal was still insufficient.
“The question of whether to cut taxes is no longer debated. Now the question is how to cut taxes, ”Haner said. “This proposal is inadequate, far too advanced and narrow. We still strongly prefer Governor-elect Youngkin’s proposal to reduce income tax by giving all taxpayers a higher standard deduction. The earned income tax credit is not a bad idea, but it is much less comprehensive and much more bureaucratic than simply increasing the standard deduction. The EITC takes the money first and then returns it, which is not smart.
Over the past week and a half, Northam has proposed several other policy initiatives for the budget, including increased funding for education and salary increases for teachers and police officers.