This past Wednesday, the Speaker gaveled in the Virginia House of Delegates for our 2019 session. Technically a "short" session at 46 days, we will still consider thousands of bills and potentially significant changes to our biennial budget.
Opening day was particularly meaningful this year as the House of Delegates celebrates its 400th anniversary. While many of the triumphs and tragedies of our great nation have centered around perfecting what it means to be a representative democracy - the foundation of it all was laid with an assembly of 22 burgesses on July 30, 1619. Earlier that same year marked the arrival of the first enslaved Africans to English North America. In a tragic irony, Governor Yeardley, who presided over the first session of the House of Burgesses, also traded those enslaved Africans for provisions.
The story of Virginia is the story of America. This year, Virginia is sponsoring a year-long commemoration to highlight the significance and modern relevance of the events that occurred in 1619. I hope you will take the time to visit the American Evolution website and take advantage of this unique opportunity to learn more about our shared history.
Constituent Survey and Town Hall Meeting
Your input is very important to me! Please take a few moments to share your thoughts on just a few of the issues facing the General Assembly by filling out my 2019 Constituent Survey. I will share the results toward the end of the session. Also, mark your calendar for my 2019 Town Hall Meeting with Senator Chap Petersen. The meeting will take place on February 2nd from 9-11 a.m. at Fairfax City Hall.
Impact of the Federal Tax Cut and Jobs Act on Virginia
The usually mundane realm of tax policy (I may have already lost readers at this point) has taken center stage this year as Virginia struggles with how to respond to the impacts of the federal Tax Cut and Jobs Act (TCJA).
At issue is a simple fact - doing nothing will result in additional revenue of ~$600 million for Virginia in the next year. Why is this? The TCJA increased the federal standard deduction to almost twice its previous value. At the same time, certain itemized deductions were suspended or limited. Federal tax consequences usually determine a person's choice to itemize or claim the standard deduction. Therefore, more taxpayers will opt to choose the federal standard deduction. However, Virginia law requires a taxpayer who claims the federal standard deduction to claim the state standard deduction, which is smaller and hasn't changed. The result? While maximizing their combined federal/state return, about 26% of Virginians will see an increase in their state taxes.
Although not a situation of our making, the TCJA does present an opportunity to make needed changes to our tax structure. In doing so, however, it is important to understand who are the 26% of Virginians paying more state taxes under the TCJA. According to the Virginia Department of Taxation, the largest portion (40%) makes under $50K per year. Thirty-five percent make $50K to $125K, while 24% make $125K to $250K. Looking at the actual percent increase in their tax bills, the hardest hit category is $50K to $125K.
The two most frequently cited proposals for reforming Virginia's system are to make Virginia's Earned Income Tax Credit (EITC) refundable (proposed by Governor Northam) and to increase the amount of Virginia's standard deduction. Making the EITC refundable (implemented at the federal level during the 1980s under the Reagan Administration) will help ~400,000 families making less than $50K. The strength of this approach is that the credit is only available for working families. On the other hand, increasing Virginia's standard deduction will make the entire structure more progressive. While this will help lower income brackets, it will also provide tax relief to middle and upper brackets. Note that Virginia's standard deduction hasn't been raised since 2005. There is nothing mutually exclusive about these approaches - and it very well may be that the most prudent path forward is to combine them.
Another important factor that the General Assembly must consider is that most individual provisions of the TCJA are temporary and will expire in tax year 2025. That means Virginia can't assume that all of the additional revenue will last beyond that point. That is why, in addition to the refundable EITC, the Governor proposed a range of one-time, future-oriented investments in areas such as workforce development, water quality protection, education, and rural broadband.
It has been suggested that the law be changed to allow Virginians to take the federal standard deduction while being able to itemize at the state level. Virginia relies on the federal government to audit itemized returns. So, if Virginia were to de-couple the process, we would have to create a separate bureaucracy to audit Virginia-only itemized returns. Probably not someplace we want to go.
If I've held your attention - I'm impressed! While complicated, these are critically important issues. I would value your thoughts and ideas. More to come!
Thank you for the opportunity to serve our community! I look forward to providing you with weekly updates throughout the 2019 session.