GOP tax bills die at General Assembly, but with budget, 'nothing is ever dead' (copy) (copy) (copy)
The first batch of Republican bills to reduce Virginians' income and sales tax liabilities is dead in this General Assembly session.
Or maybe not.
The Senate Finance & Appropriations Committee voted along party lines Tuesday to carry over legislation introduced by GOP senators to make permanent the state's current standard deduction and earned income tax credits while eliminating a 1% local option sales tax on groceries and exempting overtime pay from income taxation, as the Republican-controlled Congress already has done in the massive tax-cut package that President Donald Trump signed into law July 4.
But some of those proposals remain alive in other legislation — including a bill sponsored by Senate Finance Chair Louise Lucas, D-Portsmouth, to extend the higher standard deductions and earned income tax credits — and most of them are still part of the two-year budget that Gov. Glenn Youngkin introduced last month before leaving office, and that the assembly will adopt before it adjourns March 14.
"In this process, when it comes to revenue and it comes to taxes, nothing is ever dead," said Sen. Creigh Deeds, D-Charlottesville, a senior Democrat on the finance committee.
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Tax policy will be one of the many political battlefields on which Democrats and Republicans both will carry the flag of "affordability." During a legislative session dominated by newly inaugurated Gov. Abigail Spanberger, both sides will focus on policies that lower monthly living expenses, such as housing, groceries, energy and health care.
"Our highest priority is looking for solutions that put more money back in Virginians' pockets," said Senate Minority Leader Ryan McDougle, R-Hanover, who proposed the new tax exemption for overtime pay and voted against carrying the bills over.
Deeds said the committee is trying to preserve its options on tax revenues as it begins to fashion its own version of the budget by Feb. 22.
"We're not trying to tie anybody's hands at this point," he said in an interview. "We don't know how much revenue we have. We don't know how much revenue we're going to need."
For example, the committee majority carried over until next year Senate Bill 7, proposed by Sen. David Suetterlein, R-Roanoke County, to make permanent the state's current standard deductions for income taxes and the refundable earned income tax credit for working families with lower incomes. Those two proposals would reduce revenues by $1.1 billion a year in Youngkin's budget.
But Lucas is sponsoring Senate Bill 662 to do the same thing, although her proposed extension would end in 2029.
"We are going to work on these, trust me," she told him during an earlier meeting of the resources subcommittee that recommended carrying over the bill.
Suetterlein said, "I am confident that if you carry a bill on it, I am hopeful."
He may face a tougher climb with Senate Bill 9, which he proposed to eliminate the 1% local option sales tax on groceries on Jan. 1. Youngkin didn't include that proposal in his budget, and Deeds said he doesn't like requiring the state to pay localities $132 million this year and more than $300 million a year in the future to replace revenue they receive now from the 1% sales tax on groceries.
Virginia already pays localities $950 million a year to compensate for a portion of the local car tax that the assembly rolled back more than 25 years ago under then-Gov. Jim Gilmore. "You're talking about using state revenue to replace a local tax," Deeds said in an interview. "I'm tired of doing that."
Katie Boyle, a lobbyist for the Virginia Association of Counties, said that her organization and the Virginia Municipal League also don't like depending on the annual state budget process for the revenue they receive automatically now.
Boyle reminded legislators that Youngkin's proposed budget at the end of 2023 did not include money for localities that he and the assembly had promised when they eliminated the state portion of the grocery tax in 2022, although the legislature amended the budget to provide the funding.
"Our reservation is that the bill, as structured, leaves localities reliant on the state to continue providing the money for the hold-harmless (requirement) in perpetuity," she said.
However, elimination of the local option sales tax could be part of a debate this year over proposed legislation to restructure sales tax policy to raise money for the Washington Metro and other public transit systems, as well as public education and highway improvements.
McDougle said he is not confident that the Senate will reconsider the proposal to eliminate the local sales tax on groceries or his proposal, Senate Bill 143, to exempt overtime pay from state income tax.
The Senate committee carried over his overtime pay bill, which would reduce state income tax revenues by $165 million in the next two-year budget, on a 9-5, party-line vote.
"We're going to continue to fight for them, but I'm afraid they're dead," McDougle said in an interview after the votes.
Lucas expressed concern that exemption income "based on the way it is earned" could raise equity issues for taxpayers "who may face similar financial constraints."
The overtime pay exemption is part of Youngkin's parting budget, along with provisions from the Trump tax bill that would exempt income from tips and interest on car loans, which each would reduce revenues by more than $53 million over two years.
Youngkin's budget also would conform state tax policy to federal changes in the Trump bill, especially for businesses. His proposals would reduce state revenues by $433 million this year and in the next two-year budget, but they also face resistance from assembly Democrats.
"I think the overtime pay (exemption) probably is dead," Deeds said in an interview. "We're not going to conform to a lot of things that the federal government has done."
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Michael Martz (804) 649-6964
