Following extraordinary tax collections this year by the Commonwealth of Virginia, more than double the projected rate, rather than ensure fair tax cuts for all citizens in the state, Governor Ralph Northam has proposed to make the earned income tax credit (EITC) refundable. Although Northam defines this as a “tax cut for the poor,” it is tantamount to $240 million tax increase on those in the working and middle class.
Two top Virginia legislators weighed in on the proposed measure with less than favorable acclaim than the state’s executive branch.
“With the federal deduction almost doubling and the Virginia deduction being at $6,000 for the standard deduction, there is going to be a lot of people taking that Federal Standard Deduction and not being able to itemize things on the state level that they used to like mortgages, healthcare etc. – it would really disadvantage them,” Speaker of the House of Delegates Kirk Cox (R-Colonial Heights) said through a news release.
“I think we have been pretty clear in our earlier statements that we see that as a tax increase on the middle class, especially the 640,000 people that would itemize if they could,” he added.
Jointly, Chairman of the House Appropriations Committee Delegate Chris Jones (R-Suffolk) said that “The personal changes at the federal government were temporary, five or six years, it’s the business cuts that were permanent.” Therefore, instituting a refundable EITC would prove fiscally fatal for Virginia after the temporary tax cuts at the federal level subside.
Currently, Republican lawmakers in Washington are working on a second round of tax cuts, with one of the stipulations being making the individual cuts permanent, rather than having a sunset date in 2024. Though, there are no guarantees such a measure will pass quickly, considering the highly divisive political climate surrounding tax breaks between Democrats and the Trump Administration.
Delegate Jones explained that if Virginia handles the state’s tax windfall by ensuring a refundable EITC, and “then if the deduction goes away at the federal level in five or six years we don’t think it’s prudent.” If the ETIC proposal were to continue after the sunset date of the federal individual tax cuts, it would drive up welfare spending in the Commonwealth to a level that is financially unsustainable.
“No one is going to unwind it once you put that in place.” Jones said. “And, the refundable nature is a problem that we have. If you haven’t earned it then you shouldn’t be able to get additional dollars back above that.”