Because the federal government cannot operate without constantly borrowing money, members of Congress in both parties recently held their noses and voted for a compromise budget and borrowing deal. That need not and should not happen now in Virginia.
There is no similar pressure in Virginia, even though the June 30 end of the state fiscal year approaches. Virginia has a viable, fully balanced budget that runs through June 30, 2024. The stalemate underway involves only unadopted second-year amendments.
Governor Glenn Youngkin and the House of Delegates should insist that any amendments to that new fiscal year budget include every dollar of tax relief they approved earlier this year. None of the spending increases approved by either the House or the Virginia Senate should be included unless the full amount of tax relief accompanies them.
If the July deadline passes with no action, with no agreement to couple tax cuts with spending increases, Virginia’s Republican legislators will have accomplished what their colleagues in Washington failed to do (and in fairness couldn’t do). They will have stood firm until the taxpayers received the same level of consideration as those who consume those taxes.
The real decision deadline is Election Day in November. Continuing the stalemate would give the voters a clear choice between the House vision of tax relief coupled with reasonable spending growth, or the Senate vision of mainly higher spending and zero tax relief.
Because it rejected all the proposed tax reforms, the Senate budget would spend about $1 billion more than the House next year. In a recent broadcast news account on the debate, Senator Lamont Bagby, D-Henrico, stated the Senate’s position clearly:
Bagby says after tax cuts last year, all the money should go toward paying teachers and improving Virginia’s roads and healthcare systems. “Every dollar that we send back to individuals who don’t need it, and quite frankly aren’t asking for it, are dollars that we are wasting that we could be using for our priorities,” Bagby said.
So the tax cuts would go “to individuals who don’t need it and quite frankly aren’t asking for it?” Money not taken from taxpayers is “wasted?” Perhaps in the Bagby household somebody else handles the finances? No one actually paying household bills through this long stretch of broad inflation could believe people are not feeling real financial pain, even those with steady incomes. Lower income folks are being crushed.
Senator Bagby’s claim that Virginians “don’t need” more money for those bills is both wrong and a dangerous political stance. It is just as tone deaf as what former Governor Terry McAuliffe said about parents and schools.
The recent sticker shock in this household came from the auto insurance bill, which has now gone up 66% in three years despite higher deductibles. For many others, their real estate and car tax bills provided heartburn. What did a cable and internet bundle cost just three years ago compared to now? Groceries? Few can look over their household budget and find any category that has stayed the same, especially not state and local taxes.
The inflation ravaging the budgets of most Americans has been a bonanza for state and local governments. Higher prices lead to higher sales tax collections. Rising real estate and automobile values force up those taxes. Because the state tax code doesn’t adjust for inflation, a raise in pay benefits the government as much as it does the workers, including low wage workers. Even the higher insurance premiums provide extra tax dollars to the state.
Bagby may have one point. The business community in the state has not mounted any campaign to support the lower corporate income tax rates which were approved by the House of Delegates, so apparently doesn’t want those reductions badly. A similar proposal from the Thomas Jefferson Institute a few years back was also greeted with apathy.
So the dollars Youngkin and the House earmarked for corporate relief (about a third of a billion dollars annually) should go into individual tax relief instead, providing consumers more help for the higher prices coming at them from those same corporations. The modest proposed increase in the standard deduction could become more significant. Instead of dropping the top personal tax rate to 5.5%, it could go down to 5%.
Or abandoning the corporate income tax cut could allow the state to finally begin to annually adjust for inflation provisions such as the standard deduction, various exemptions, the Earned Income Tax Credit and even the tax brackets themselves.
Indexing the state tax code to help families in the same way the federal tax code is adjusted would be the most permanent and effective way to relieve pressure on working Virginians. Which is why there is little stomach for it among legislators, especially those in both parties who make the spending decisions.
Congress was up against the wall in May, admittedly a high brick wall that both parties built over decades. Virginia on the other hand has long enjoyed bipartisan support for a budget based on actual cash flow, with strict limits on debt, and is now awash with unspent cash thanks to inflation and this budget stalemate.
Rushing to a bad outcome is not required. This time, the big spenders need to blink.
STEVE HANER is Senior Fellow with the Thomas Jefferson Institute for Public Policy. He may be reached at [email protected].
