In time for the holidays, taxpayers are learning how Governor Ralph Northam plans to spend the $1.2 billion in higher taxes funding his budget plan.
After months in the making, Gov. Ralph Northam presented his 2019 budget amendments to the joint money committees in Richmond yesterday, proposing $2.2 billion in new state spending and drawing the headlines to match. Of that, $1.6 billion would be recurring after his term ends.
While Democrats highlighted spending priorities, Republican leaders cautioned that 600,000 middle-class Virginians would face higher taxes to fund the full package.
“They are touting around $2.2 billion worth of spending and that is really paid for mainly by $1.2 billion worth of tax increases on the middle class,” said Speaker Kirk Cox (R-Colonial Heights). “There are going to be about 600,000 middle class taxpayers who are affected and that is going to be one of our priorities to make them whole.”
The 600,000 taxpayers he refers to are those affected by Northam’s decision to not conform state tax code to federal changes, which is usually done in Richmond with regularity and little controversy.
Last year’s federal tax reform bill increased the standard deduction, a provision designed to benefit the middle class. According to the non-partisan Tax Foundation, middle-class taxpayers are more likely to take the standard deduction than the wealthy. Only 6.5% of those with incomes over $200,000 opt for the standard deduction.
Like many states, Virginia’s standard deduction had been set to match the federal deduction, as tax rules require filers who take it federally to do the same on their state returns. Normally, changes to federal tax laws are accompanied by conformity measures making similar changes in Richmond, with the intent of keeping taxes level.
Rather than advance a routine conformity measure, Northam opted to redirect the $1.2 billion due to taxpayers towards his spending package instead, through the state’s general fund.
In effect, this means higher taxes for 600,000 middle class filers through deliberate inaction.
Democrats refused to respond to the tax hike directly, and instead blamed the federal government for their decision to spend money intended for taxpayers. None expressed a willingness to support a measure conforming the standard deduction and leaving the money in the hands of the taxpayers.
Northam structured his budget assuming the $1.2 billion flows to the state.
Republican leaders pledged to offer an alternative budget which keeps the $1.2 billion in the hands of taxpayers.