Youngkin renews push on tax changes

In his second State of the Commonwealth speech before a joint session of Virginia’s legislature, Gov. Glenn Youngkin on Wednesday once again urged lawmakers to support his budget proposal that would structurally reform the state’s tax code.

Youngkin’s plan includes cutting taxes across the board 12% and paying for almost 80% of this by modernizing the state’s tax code — which he said entails closing the tech tax loophole and increasing the sales and use tax by 0.9% and expanding the earned income tax credit for low-income Virginians. 

Youngkin also renewed his push to repeal Virginia’s personal property tax on cars, which was first made in some off-the-cuff remarks to reporters after last month’s budget presentation.

“There is one topic not included in my budget submission, but that I challenge all of us to take up and resolve, and that is to eliminate the single most hated tax in Virginia — the locally imposed personal car tax,” Youngkin said Wednesday. 

The proposal has been embraced mostly by Republicans since 1997, when Republican Jim Gilmore made repealing the unpopular tax a staple of his successful gubernatorial campaign, but Youngkin had not openly discussed it until recently, after two Democrats running for legislative office in Southwest Virginia had made it a part of their campaign platforms. 

“To be clear, this is a package deal, and I’m only interested in a plan that reduces taxes for Virginians,” Youngkin said. “We can eliminate the car tax, provide real relief, and keep our localities whole.”

And Virginia’s “population migration problem” requires an overhaul of the state’s tax code, Youngkin said. “Even though the rate has declined this past year, for 10 years now, more people moved away, rather than to Virginia, from the other 49 states. Three out of four people leaving the commonwealth make $100,000 or more, and the taxes they pay are leaving with them,” he said. “The data is irrefutable.”

But earlier Wednesday, House and Senate Democratic leaders at a news conference at the newly renovated General Assembly Building emphasized that Youngkin’s ideas for tax reform — including the proposed increase of the state’s sales tax rate from 4.3% to 5.2% — would be non-starters.

“There is a pretty strong sense in my caucus that we’re not cutting income taxes for people that make lots of money,” said Sen. Scott Surovell, D-Fairfax, the new Senate majority leader. “Someone that makes $200,000 a year, we’re not going to let them pay $10,000 less in taxes while people that make less than $30,000 a year pay more. I don’t think that’s going anywhere.”

Surovell also rejected Youngkin’s call for replacing the car tax. “Putting out a car tax proposal without making the hard decisions and building it into your budget and explaining exactly what you want to do is not serious policy-making, it’s a campaign stunt,” Surovell said. 

Youngkin, he added, “needs to get out of campaign mode” and start getting into governing mode. “If he wants to start proposing things that we should agree with, he needs to put details on them instead of throwing things out there for you guys to write about them without telling us what exactly he wants us to vote on.”

There have been no discussions among Senate Democrats about a car tax repeal yet, Surovell said. “We haven’t even talked about it as a caucus, and my opinion is that it is dead on arrival,” he said.

In Fairfax County, the personal property tax generates funding for the school system of about $3,500 per student, he said. “I haven’t heard from the governor about how he intends to replace that kind of money, and just to throw something like that out there is irresponsible,” he said. “That isn’t going to happen.”

Echoing Surovell’s remarks, Del. Charniele Herring, D-Alexandria, the new House majority leader, said that she doesn’t believe that a public school teacher who takes on a second job during the summer to make ends meet should have to pay more in taxes than someone in a higher income bracket. 

“We believe in a fair share. We don’t want to squash anyone’s ambitions to be wealthy, that’s not what this is about. This is about those hard-working Virginians who are having to work two or three jobs, who are not with their children, they don’t have the luxury to be with their children at night to help them with homework,” Herring said. 

“We hear about learning loss and how students are falling behind. Well, some parents make enough money to be able to be there to support their families and children. We want that for those hard working teachers and those in other industries who are not able to make enough and have time with their families.”

However, Surovell said that there were some areas of potential compromise. “I think we have space to talk about making the earned income tax credit more refundable, which is something that he proposed,” he said of Youngkin. 

Democrats are also open to discussing a provision in Youngkin’s budget proposal that would close the so-called tech tax loophole on digital goods that are currently classified as tax-exempt services — meaning Virginia would start taxing online music downloads from platforms such as Apple Music if the General Assembly approves the proposal.

“The sales tax modernization is something that we need to talk about,” Surovell said. “Just because you can download your software online directly from a company instead of buying it in a box from Office Depot, I don’t think it should really make a difference whether you stream a movie on Amazon versus buying it at a movie store shouldn’t make a difference. Technology is past that.”

But Youngkin in his speech on Wednesday hailed the positive impact the tax cuts of the last two years had on the commonwealth.

“We provided a record $5 billion in tax relief, particularly benefitting lower income Virginians who need it most,” he said, adding that “233,000 more Virginians are working today than two years ago. Virginia has risen from bottom third in job growth to number three in the nation during the past 24 months, and more Virginians are working today than ever before.”

Youngkin also touted the state’s record investments in public education and school construction since he assumed office in early 2022. “I have proposed, again, the largest education budget in Virginia’s history, $20.2 billion over the biennium,” he said. 

Heading into this next fiscal year, annual state funding will have increased $2.1 billion over 2021 levels — a 27% increase — including 17% increase for teacher raises, record funding for facilities and even more support for student services, Youngkin said. 

“This has been a tremendous effort on all of our behalf to fund our schools at unprecedented levels. And I would caution us from drawing strong opinions from out of date facts that precede this great work.”

Circling back to Virginia’s migration patterns, Youngkin reiterated the importance of additional tax relief to support those who remain in the commonwealth. 

“Let me just remind you, Virginians are moving away. Families, small businesses, entrepreneurs, job creators and young professionals, and the taxes they pay that fund our schools, our behavioral health care and other essential services, are moving away, too,” he said. 

“In order to address these issues over the past two years, Virginians have received $5 billion in tax relief, which equates to $2,200 for the typical Virginia family and $4,500 for our veterans.”

And once again, Youngkin called for a repeal of the so-called clean cars law that aims to reduce carbon pollution through the adoption of California’s stringent rules for vehicle emissions. Democrats passed the law in 2021 when they controlled both chambers of the legislature, and Republicans have since tried to dismantle the legislation — without success. 

“Virginians are in charge of our destiny, no one else,” Youngkin said. “That means we also put power where it belongs — with the people. We must reject the current misguided law that allows California to dictate our vehicle laws.”

Not only does the law defy common sense, but “Virginians should decide for Virginians,” Youngkin stressed. “With this misguided law in place, the regulatory process is starting this year, meaning more and more Virginians will see higher costs and fewer choices. The fastest way to fix this is for Virginia’s General Assembly to pass a bill allowing Virginians to decide what car they drive.”

But for Democrats, this would be another non-starter. At the news conference Wednesday morning, Surovell, the Senate majority leader, called on Youngkin to reverse Virginia’s exit from the Regional Greenhouse Gas Initiative, or RGGI, a cap-and-trade partnership between 12 states and energy polluters, such as utility companies. It was at the governor’s directive last year that Virginia was removed from RGGI.  

“We need to invest in infrastructure because of climate change, and a key part of that is that Virginia gets back in RGGI,” Surovell said. “We left RGGI 10 days ago on Dec. 31, illegally, and our caucus’s intention is to get the governor put us back in RGGI so we can get those tens of millions of dollars that are sitting there waiting to to spent and invested in remediating our flood problems all around the state, and much of it in the mountains of Virginia.” 

Other policy pillars that Democrats laid out for the 2024 session include more funding for public education, voting rights, continued access to abortions, public safety and infrastructure improvements.

Especially funding for K-12 education remained a priority for Democrats, Surovell said. 

“We’re $7 billion behind where we need to be funding K-12 right now. Tax cuts are not going to get us there, we really need to be talking about how to start solving these problems with resources instead of taking resources out of the system for a political stunt,” he said. 

Another item on the Democrats’ list is the creation of an adult-use cannabis retail market. 

While a Democratic majority in the General Assembly decriminalized some personal possession and home growing of cannabis effective in 2021, the parts of the legislation that would create a fully regulated marketplace by 2024 have yet to be finalized. 

“It’s shocking that we have gone two years under Republican leadership in the House and it stopped us from getting a regulated market. It’s dangerous, and it’s definitely a priority that we have a regulated market,” Herring said. “We are very serious about it and we will hopefully make it happen.”

Senate Democrats have filed two proposals aimed at fixing a problem that is unique in the United States. Sen. Aaron Rouse, D-Virginia Beach, has introduced a measure that would establish a cannabis retail market and regulatory structure inclusive of Virginia’s small and midsize businesses. 

Rouse’s proposal would allow for potential licensees to apply for licenses at the same time, set a 12% retail tax for cannabis products, with 6% going to the state, and 6% to localities. It would also empower the Virginia Cannabis Control Authority to establish secure seed to sale tracking. Sen. Adam Ebbin, D-Alexandria, has also filed legislation. 

In the House, Del. Paul Krizek, D-Alexandria, has sponsored a similar proposal, which would allow certain pharmaceutical processors to begin operations as soon as July 1.

Herring, the House majority leader, issued a warning to Youngkin, who has been hesitant in addressing the current lack of a regulated market. “If a bill gets to his desk and he vetoes it, I’m not sure what that communication is going to be to the public about their safety,” she said. 

House Republicans did not hold a news conference Wednesday, but Del. Todd Gilbert, R-Shenandoah, the new House minority leader, said that his caucus’s priorities haven’t changed from what Republicans told Virginians they would do during the election. 

“We’re focused on making our neighborhood safer by keeping violent felons behind bars and getting fentanyl off our streets,” Gilbert said. “We’re focused on providing better schools with higher standards for all of our students, and we’re working to lower the cost of living for Virginians by continuing to roll back unaffordable mandates like the one ending the sale of gasoline powered cars by 2035.”