The Commonwealth of Virginia took in a record amount of tax collections this year, so much that it has caused a General Assembly special session, fighting within the legislature, and the governor devising a plan to subsidize those who do not pay taxes with middle-class tax collections. In the months since tax day, the “conservative” approach to tax collections touted by the governor seems to have worn off as the earned income tax credit (ETIC) may become refundable.

Considering Virginia is a tax conforming state and must alter the code to reflect the federal collection mechanism, without action from the governor and the General Assembly, this measure will be tantamount to a $240 million tax increase on middle-class Virginians.

In August, $1.446 billion in general fund revenue was taken in, a 4.5 percent year-over-year increase, much of which was spurred by a boost in sales tax collections and payroll withholding.

Similarly, on tax day months ago, a surge in payments to the state came from taxpayers who enjoyed massive capital gains or estimated payments based on income, all of which is not subject to tax withholding. The most unpredictable source of Virginia’s revenue – non-withholding tax payments – rose by over 40 percent that month, adding $150 million to the $250 million the state had collected in December and January.

Collection of sales and use taxes increased by 7.5 percent in August compared with the same month in 2017. As well, there was a 5.1 percent year-over-year increase in collections of payroll withholding taxes.

In May, Governor Ralph Northam said, “As we complete our work on the commonwealth’s budget, we should use this opportunity to strengthen Virginia’s financial position by investing any unanticipated revenues in our cash reserve,” according to a report from the Richmond Times-Dispatch. “By taking a conservative approach we will protect our Triple-A bond rating and insulate Virginia families from future uncertainty that could stem from federal tax changes or chaos in Washington.”

As the money flows into Virginia’s coffers, the time now to invest these revenues into the rainy day fund, as the governor as long said. Furthermore, the governor should, based on his previous statement, should “insulate Virginia families from future uncertainty that could stem from federal tax changes.”

The tax situation can be solved simply. In tax conforming state, allow state taxpayers to itemize their state taxes even if they do not itemize their federal taxes. This small change is currently endorsed by many Republicans in the state legislature, and supported by a majority of Virginia residents.