If words were songs, “affordability” would be at the top of the charts right now.
Democrats came up with the word as a campaign theme, and now Republicans have adopted it, too, and are trying to turn it to their advantage.
Republicans in Richmond have been calling attention to all the bills that Democratic legislators have introduced that would raise taxes — something that would seem to be at odds with an agenda of making things more affordable.
It is true that there are about two dozen or more bills that have some sort of tax increase. However, Democrats counter that many of these are so targeted that they don’t really affect the general public — and point to some bills they’ve introduced that would reduce taxes.
It’s also important to note that Gov. Abigail Spanberger hasn’t called for any of these. She did endorse one during the campaign, giving localities the option to hold a referendum on whether to raise the sales tax for schools. She also expressed interest in abolishing the car tax but offered no plan, so presumably might support a Democratic-sponsored bill for a study of how to proceed on that front. Beyond that, we don’t know what her views on these bills are, so Republican attempts to tie her to these measures might be good politics but aren’t really based on facts.
However, there are certainly indications that the Republican drumbeat on taxes has gotten Democrats’ attention. Over the weekend, Senate Finance Committee Chair Louise Lucas, D-Portsmouth, posted on social media: “Newsflash — we are not Trump who passed the biggest tax increase in history through his tariffs. Stay tuned for when we actually pass a bill and budget. We will keep affordability above all else to help hardworking Virginians.”
When a Republican commenter posted, “we look at the bills filed in the legislature — not your words. And the bills say ‘big tax increase,’” Lucas replied: “Now watch Schoolhouse Rock and learn that a bill is not a law! Most bills never become a law.”
Chris Saxman, a former Republican delegate from Staunton who now heads the pro-business group Virginia FREE, has tried to dampen down some of his party’s concerns. “At the outset of EVERY Session, there are bills that are dropped in that, to say the least, grab headlines. With social media these days, it’s a constant barrage of outrage and mistaken blame,” he wrote in a social media post. “I learned VERY early on that reading the initial drafts of legislation was an absolute waste of time because by the time a bill gets to the committees (sub and full) there were going to be so many changes, called Substitutes, that it was better to deal with them in real time.”
In effect, he’s channeling the famous quote from Calvin Coolidge, who once said: “‘If you see 10 troubles coming down the road, you can be sure nine will go in the ditch and you have only one to battle with.”
I’ve ignored part of Saxman’s advice and gone ahead and looked at all the tax-related measures I could find (I can’t swear I found them all, but I looked at all the ones I’ve seen bandied about). This is by no means a comprehensive list, but here’s what I’ve been able to glean about the main ones being discussed, after which you can come to your own conclusions.
New income tax brackets
There are at least three Democratic-sponsored measures that would create new (and higher) tax brackets for higher-income earners.
HB 188 by Del. Kelly Convirs-Fowler, D-Virginia Beach, would create a new tax bracket for those making $1 million or more — to be taxed at 10%. Currently, all income above $17,000 is taxed at 5.75%. Sen. Mamie Locke, D-Hampton, has a budget amendment to accomplish the same thing.
HB 979 by Del. Vivian Watts, D-Fairfax County, would create two new tax brackets. Those with incomes from $600,000 to $1 million would be taxed at 8%, and incomes of more than $1 million would be taxed at 10% (as in the Convirs-Fowler bill).
While these are undoubtedly tax increases, the Democratic response is that they don’t involve most Virginians — only 13,170 out of the state’s 4,063,070 tax returns are for more than $1 million. That’s 0.3%, not even the proverbial 1%. Watts points out that the tax increases in her bill are balanced out by tax cuts for a larger number of people, so let’s move on to that.
Bottom line: These bills would only touch higher-income earners, although there is the danger of capital flight, which I’ll get to later in this column.
Standard deduction
The standard deduction in Virginia was raised several years ago to $8,750 for those filing single returns or $17,500 for those married and filing jointly. However, those rates are due to sunset and revert to $3,000 for single individuals and $6,000 for married individuals filing jointly. Without legislative action, that would raise taxes for a lot of people.
State Sen. David Suetterlein, R-Roanoke County, introduced a measure to make the current deductions permanent; it was put off until next year in committee along party lines, which may just be a polite way of not killing the bill outright. However, state Sen. Creigh Deeds, D-Charlottesville, has said he expects the Senate Finance Committee to come up with a “more comprehensive” solution before the legislature adjourns.
On the House side, Del. Joe McNamara, R-Roanoke County, has a similar bill (HB 12) pending in committee. It’s alongside Watts’ HB 979. Her bill that creates new tax brackets for those making more than $600,000 would also increase the current standard deduction to $10,000 for those filing single returns and $20,000 for those married and filing jointly. “And I hope to God that if I can get it passed, it’s indexed to inflation,” Watts says. “If you don’t do that, that’s when you get into all the bracket creep.”
Her bill calls for that. So does a separate measure, SB 702, introduced by Sen. Kannan Srinivassan, D-Loudoun County.
Watts’ bill would also create a third deduction of $15,000 for those filing single returns as the head of a household, which would cover single parents or those caring for an elderly parent. She says the effect of this would be a tax cut for many Virginians. “Nationally about 70% of those who take the head of household deduction have incomes under $50,000,” Watts says.
Her bill also has another tax cut included that we’ll get to in a different section. “It surprised me when they say this as a tax increase when I’m cutting taxes,” she says. As for the two new brackets, she says those increases are necessary because “after all those tax cuts you’ve got to pay for them.” That’s a philosophical difference between Democrats and Republicans. She believes that revenue being lost through tax cuts must be made up somehow; Republicans don’t.
Watts’ bill also calls for 50% of the revenue generated from the higher taxes on the two new brackets to go to localities for schools. She says her goal is to reduce local pressure to raise another kind of tax — the local real estate tax. By providing more money for schools, “this is directly dealing with the extreme pressure on the real estate tax,” she says. That, she believes, makes her bill very much an “affordability” bill — it’s raising taxes on a small number of filers and using that money to help ward off local tax increases that make housing more expensive.
Bottom line: Increasing the standard deduction helps all taxpayers.
Net investment income tax
Del. Elizabeth Bennett-Parker, D-Alexandria (likely to be elected to the state Senate in an upcoming special election), has HB 378, which creates a net investment income tax on individuals, trusts and estates.
How does this square with an affordability agenda? Here’s what Bennett-Parker said in a statement:
“My bill is critical to the affordability agenda by providing the revenue necessary to pay for investments to lower costs for Virginians, such as health care, housing, and childcare. 95% of Virginians won’t pay a single penny more under this bill, while they will see the benefits of lower costs. Most of this will come from ultrawealthy individuals who have passive investment income; this bill does not affect income from active work.
“This proposal would raise over $650 million each fiscal year, with most of that coming from the tiny group of people making more than $1 million per year.
“Virginia families who purchase their health insurance off the Marketplace have seen their costs skyrocket, some even almost tripling, as a result of the federal government allowing the enhanced premium tax credits to expire. The revenue from this proposal would not only cover the $260 million needed to fill this gap and save families thousands of dollars, but would enable additional investments to improve affordability for everyday Virginians in other areas.”
In short, she says this fits under the same category as those who want to create new income tax brackets: This only targets a small number of people, while the benefits are spread more broadly to help make things more affordable. Whether that’s a legitimate purpose of government, or simply constitutes confiscation and income redistribution, helps define where you fit on the ideological spectrum.
Republicans are warning that under Democrats, state income taxes could rise from 5.75% to 13.8%, which would be the highest in the country. To arrive at that figure, they’re looking at those with incomes $1 million or more — and combining the proposed new tax brackets with Bennett-Parker’s bill. That’s legitimate math — for those making that amount of money.
To suggest that everyone would see their taxes rise to that amount is misleading. However, the risk for Democrats is the old saying, “people aren’t trees.” Translation: People, unlike trees, can move if they don’t like their circumstances. Taxing millionaires is a good way to raise revenue without affecting ordinary taxpayers — until those higher tax brackets set off capital flight to lower-tax states, which means instead of getting 13.8% of those people’s incomes, or even 5.75%, the state would get nothing.
Virginia is already seeing capital flight to some degree. For the past 18 years (which covers all the data available), the people moving out of Virginia have made more money than the people moving in. That gap is also widening, according to data from the Internal Revenue Service. In 2011, those leaving Virginia made just $1,466 more than those moving in — a negligible amount, statistically speaking. By 2022, the most recent year available, that gap had risen to $13,183, meaning we’ve been seeing an outflux of higher-income Virginians. Demographers attribute this to retirees leaving the state for warmer climates (which also happen to be lower-tax climates), but the point is that this net out-migration of upper-income earners has been going on for some time.
The question of what the tax rate should be is partly a philosophical one, but also a practical one: What’s the price point that would set off more out-migration of higher-income earners, and what impact would that have on lower-income earners who remain behind?
Bottom line: This would only impact higher-income earners but does run the risk of triggering capital flight, especially when combined with new income tax brackets.
Food tax
The state tax on food and personal hygiene products has been eliminated, but the local tax remains. Both McNamara in the House and Suetterlein in the Senate have bills to do away with that remaining local tax. Suetterlein’s bill was put off until next year, by a party-line vote. However, in the House, Watts’ bill that creates two new income brackets and raises the standard deduction would also eliminate the local tax on food. McNamara’s bill, HB 13, would have the state make up the revenue loss to localities.
Bottom line: Eliminating the local tax on food would help all taxpayers, but especially lower-income earners, because sales taxes are regressive.
Sales tax on digital services
The rise of the digital age has upended the retail market. As some products and services have moved online, they often enter an untaxed realm. Whether that’s good or bad depends on your point of view. There are at least two bills, both by Democrats, to extend the sales tax to digital services, “including audio and visual streaming services” — which would cover things such as Spotify Premium or Netflix streaming. Some states already do this, and it’s a weird mix of both liberal states (Vermont) and conservative ones (Alabama and Wyoming).
The argument in favor of doing this: This is just modernizing the tax code. In the old days, if you went to Blockbuster to rent a movie, you had to pay sales tax. Today, if you pay to watch that movie on Netflix, why should that be any different? This is all about leveling the playing field.
The argument against: Since the state hasn’t been taxing these digital services, it’s a new tax.
Watts’ HB 978 would apply the sales tax to digital services; so would HB 900 by Del. Rip Sullivan, D-Fairfax County, although his bill also would reduce the sales tax from 4.3% to 4.0%. Under this measure, some customers might get a tax cut, others a new tax, depending on what and how they’re buying something.
For more on the Republican point of view, you can see this social media post by Del. Wendell Walker, R-Lynchburg:
From a rhetorical point of view, this would seem to be where Democrats are most vulnerable. Most people don’t make $1 million, so they may not care about millionaires getting taxed more but would care if they had to pay a tax on their streaming services.
However, Watts points out that Republicans have introduced this proposal in the past, including then-Gov. Glenn Youngkin in his proposed 2024-25 budget. He said then: “Virginia has always taxed goods. And over the last decade, the definition of goods has evolved into new economy goods like software packages, digital downloads, streaming music and videos, cloud storage and other electronic media, on which today Virginia collects nothing.”
Youngkin paired that proposal with an income tax cut; neither happened. Still, if a Republican governor saw virtue in extending the sales tax to services, why would Republican legislators oppose it now? For one thing, it’s politically convenient. For another, Youngkin’s proposal was controversial, so, political convenience aside, extending the tax is a hard sell for many Republicans, who are skeptical of taxes in general.
Watts said her bill is aimed at generating more data — and discussion. “Typically, I do this to get the Tax Department’s fiscal analysis — always want to be prepared so that if there are any tax changes, they address problems in Virginia’s tax structure — not ivory tower theory or a narrow political resume,” she said in an email.
Watts sent me a series of slides that showed Virginia has the third-most narrowly targeted sales tax in the country and that people now spend twice as much on services as goods, so the tax structure hasn’t kept up with an evolving economy.
Bottom line: Extending the sales taxes to digital services does mean those who use those services would pay taxes they’re not paying now. Sullivan’s sales tax reduction would save taxpayers on physical products. How those balance out depends on what you’re buying. It’s also probably fairer to look at these increases balanced against a proposed elimination of the food tax. Of course, some Republicans would like to see that tax eliminated, but no services taxed.
The larger question may not be this particular tax but the issue Youngkin was trying to get to — a modernization of the state code. Just because his proposal failed doesn’t change the fact that there are lots of ways the modern tax code doesn’t fit the modern economy. The problem is that any politician who tries to tackle that runs the risk of drawing opposition from the other side, regardless of which party the other side is.
Paid family leave
One of the Democrats’ dearest goals is paid family leave. SB 2 by state Sen. Jennifer Boysko, D-Fairfax County, would set up that program. However, Saxman of the business lobbying group Virginia FREE warns: “SB2 creates a new payroll tax on workers, not employers, requiring every employee to pay into the Paid Family and Medical Leave program regardless of whether they ever use it. The tax is mandatory and not optional, meaning single, childless, or low-risk workers subsidize extended leave for others.”
The argument in favor is that the deducations are small and barely noticeable for most people, although Saxman warns they might rise over time.
Boysko says that this is set up no different from an insurance program, under which people pay into a pool to help mitigate catastrophic expenses. She says in a statement: “Paid Family and Medical Leave is an insurance program that allows employees and employers to plan for their biggest life events, like having a baby or difficult events like a serious medical illness like cancer. At this time, people have to choose between having a job and caring for themselves and their loved ones. Every other industrial nation has paid family and medical leave for employees.”
Bottom line: Paid family leave would make life more affordable for some, so it depends how you feel about those payroll deductions, which would be a tax. This fits the same pattern as some other measures, in which revenue from one group of taxpayers is used to pay for benefits for another group in the name of it being better for society overall. That philosophy strikes at the heart of differences between Democrats and Republicans.
Local option sales tax for schools
Del. Sam Rasoul, D-Roanoke, and state Sen. Jeremy McPike, D-Prince William County, have introduced bills (HB 334 and SB 66) that would allow localities to hold a referendum on whether to create a sales tax of 1% to be used for schools. This is a bill that has passed in previous sessions but was vetoed by Youngkin.
Rasoul, in a social media post, acknowledged that the measure isn’t perfect — sales taxes are regressive — but said it is one way to help provide more school funding. Lynchburg City Council member Chris Faraldi, a Republican, has warned in a commentary in Cardinal News that the state might come to see this local option as a substitute for more state funding.
Under Virginia’s patchwork tax code, nine out of 133 localities already have this power: Charlotte, Gloucester, Halifax, Henry, Mecklenburg, Northampton, Patrick and Pittsylvania counties and the city of Danville. For what it’s worth, those eight counties are all reliably Republican; only Danville votes Democratic. A majority of voters in those localities have been fine with a tax increase as long as they could see the results in their local schools. There’s also always the argument that raising the sales tax takes pressure off the real estate tax.
Since this particular tax is dependent on a local referendum, you can argue that this is the fairest tax of all — no concern about the “consent of the governed” here because it’s the voters themselves choosing to impose this tax, not some government intermediary. On the other hand, this is a tax, and, if Faraldi’s warning proves true, the state could shrug off some of its responsibility while some of the poorest localities in the state feel forced to impose a regressive tax because that’s all they can do.
Bottom line: Yes, it’s a tax, but one that voters themselves would have to approve. Does that change anyone’s calculus?
Gross receipts tax on guns and ammunition
Two bills — HB 919 by Del. Alfonso Lopez, D-Arlington County, and SB 763 by Sen Angelia Williams Graves, D-Norfolk — would establish an 11% tax on the gross receipts of the sale of firearms and ammunition, with the proceeds going to the Virginia Gun Violence Intervention and Prevention Fund. Lopez sends this explanation by email: “It will create a new funding source through an excise tax directly on gun manufacturers to be used for gun violence prevention. The bill will NOT include increases on any type of retail tax for products and necessities that families are dependent on but struggling to afford.”
While this is a gross receipts tax, it seems reasonable to assume that sellers would pass at least some of the additional cost onto customers. Just as most of President Donald Trump’s tariffs on imports get passed onto consumers, so do taxes, an inconvenient point for liberals and conservatives alike. Whether guns and firearms constitute “products and necessities that families are dependent on” depends on how you view your guns and ammunition.
Bottom line: This is a new tax, albeit a targeted one. I can imagine the impact of this feeling differently in rural Virginia, where hunting is popular and pickups with gun racks are a common sight, than in the state’s cities and suburbs.
Energy-related taxes
Lopez has also introduced HB 935, which is aimed at promoting battery storage for renewable energy — i.e., big batteries to store solar power, so that power can be used later when the sun isn’t shining. The bill requires solar developers and energy storage developers to pay a one-time fee of 0.02 per watt of generation or storage capacity. Is that a tax? And, if so, wouldn’t that ultimately get passed on to customers?
Lopez says in a statement: “I believe the savings from storage will lower costs. Virginia’s clean energy industry is one of our most important sources of affordable, reliable energy for families. Accelerating deployment of new clean energy will help us control costs and lower energy bills for Virginia families and businesses. In fact, every watt of new clean energy helps control future costs. Also, as federal clean energy tax credits expire in the coming years, Virginia needs to act quickly to take advantage of those federal dollars. HB 935, paid by the companies and not Virginia ratepayers, will accelerate more new clean energy deployment by addressing barriers that drive up electric bills and delay deployment.”
Bottom line: This bill encapsulates two essential debates over renewable energy: Is it reliable and will it lower costs? Critics say no; supporters such as Lopez say yes.
Tax breaks
Finally, we come to some tax breaks that Democrats have proposed — beyond the one cited above.
Two Democrats — Del. Lily Franklin, D-Montgomery County, and state Sen. Dave Marsden, D-Fairfax County — have introduced measures to study how to eliminate the car tax. True, that’s just a study, not an actual elimination, but getting rid of the car tax is tricky, which is why it’s still with us.
The catch with that is the tax isn’t a state tax, it’s a local tax. Any locality could eliminate the car tax right now if it wanted to; localities don’t because they need the revenue. These bills are aimed at figuring out how to replace those funds. Maybe nothing ever happens here, but realistically, the car tax will never be abolished without a study, so this constitutes a first step.
There are some other tax-break proposals floating around. I feel certain this isn’t a full list, but it gives you a flavor: Sen. Danica Roem, D-Prince William County, has a bill to create a tax credit for companies that label products in Braille; Williams Graves wants to exempt baby products from the sales tax. Lopez and Sen. Barbara Favola, D-Arlington County, want to increase the tax exemption on backpacks during the back-to-school tax holiday to $50. Sen. Kannan Srinivasan, D-Loudoun County, wants $10 million in toll relief in Northern Virginia. Sen. Lashrecse Aird, D-Petersburg, wants a refundable $300 child tax credit per child aged 12 or younger in households making up to $100,000 adjusted gross income. Del. Michael Feggans, D-Virginia Beach and a legislator with a lot of military constituents, wants to increase the amount of military benefits that can be exempted from Virginia taxes.
So what’s the ultimate bottom line? Much depends on your personal situation. If you’re making more than $1 million a year, you’d definitely see a tax increase if some of these bills pass. If the standard deduction increases, that’s effectively a tax cut. If it doesn’t, it would feel the same as a tax increase. For other tax bills, the impact might be a lot more complicated, especially where those digital services are concerned. Overall, the theme seems to be taxing upper-income earners more and then using that money either for programs that benefit lower-income earners or for tax breaks aimed at specific groups, be they parents buying backpacks for students, parents with young children, or commuters in Northern Virginia. Whether that’s good policy or bad policy is why we have elections — and votes in the legislature.
If any of these measures bother you, let your legislator know. If any of them strike you as necessary and overdue, let your legislator know, too.
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