Youngkin Proposes Another $1B in Business, Income Tax Cuts for Virginia

Virginia is in a financial position to both cut taxes by another $1 billion and increase government spending, Gov. Glenn Youngkin said Thursday as he unveiled his proposed amendments to the two-year state budget.

The Republican governor is calling on lawmakers to cut the corporate tax rate and lower income taxes. Youngkin made the case in a speech in Richmond that his vision was fiscally responsible and would not only help families dealing with a bleak economic outlook but also make Virginia more competitive in luring new businesses.

“This budget accounts for the reality of the looming economic storm. It also accounts for the need to accelerate results, and the fact that our state government’s financial condition has never been stronger," Youngkin, a former private equity executive, told members of the House and Senate money committees.

The governor’s proposed amendments to the 2022-2024 budget will serve as a starting point for negotiations when the politically divided General Assembly convenes in January. The spending plan typically goes through substantial changes before lawmakers send it back to the governor for his consideration and possible further amendments.

Youngkin campaigned last year on a promise to cut taxes, and previously signed around $4 billion in tax relief into law earlier this year.

This time, he's asking lawmakers to again increase the standard deduction and reduce the rate on the top income tax bracket, which begins at $17,001, from 5.75% to 5.5% if general fund revenues meet the forecast. His office estimates his suite of proposed changes would save the average family of four $578 a year.

His plan does not include a renewed push for a gas tax holiday or a full elimination of the grocery tax, which was reduced earlier this year.

In addition to a corporate tax rate cut from 6% to 5% Youngkin also wants to create a statewide 10% business income tax deduction for small businesses and “pass-through entities.”

Some Democrats raised concerns during Thursday’s meeting about those proposals. Finance Secretary Stephen Cummings defended the focus on the corporate tax rate, which he called a “headline number” and an important signal to businesses deciding where to set up shop.

The governor's office made the case in a briefing document shared with reporters ahead of his Thursday speech that although there is growing concern about the effect of inflation, rising interest rates and the possibility of a recession next year, Virginia is still in a position to sustain another reduction in tax revenues.

"As a result of a conservative budget and unprecedented balance sheet strength, the Governor is confident that the Commonwealth is in an excellent position to excel before, during, and after periods of challenging economic conditions," the document said.

It noted that the state's rainy-day fund balance is on track to hit $4.2 billion by the end of fiscal 2024.

On the spending side, Youngkin wants $450 million to identify and acquire industrial properties. Youngkin has said he thinks the state needs to work harder to produce business-ready sites that might lure a major manufacturing employer. That funding would be on top of $150 million previously allocated for so-called “megasites” earlier this year, plus the more than $100 million spent over the past decade on a series of sites with little to show for it, a previous Associated Press review found.

The governor proposed an additional $427.7 million for public education he said would combat learning loss caused by the pandemic and boost funding for his “laboratory schools” initiative.

He wants a teacher retention bonus paid next August as well as a pool of money for merit raises, proposals quickly panned by the Virginia Education Association.

Youngkin called for spending $674 million on “long-delayed environmental projects and Chesapeake Bay initiatives,” including efforts to clean up the waterways that flow into the bay.

Under his proposal, the city of Richmond would get $100 million to help fix the outstanding problems with its aged combined sewer system, which carries both waste and storm water and often overflows, sending sewage into waterways including the James River.

The governor is also seeking an additional $230 million on initiatives to improve behavioral health services, a goal he outlined during a Wednesday event.

Republicans who control the House of Delegates lauded Youngkin's proposals.

House Appropriations Committee Chairman Barry Knight, a Republican from Virginia Beach, said he thought the governor's plan was “a wonderful place to start.”

He said the budget was carefully crafted and the tax cuts sustainable, given that some of them come with triggers meaning they would not take effect unless revenue forecasts are met.

"We know it's a cost to the government. We know we’ve got some excess revenues, but — you know — our crystal ball isn’t that far in advance," he said.

Democrats who control the state Senate were less generous. Senate Finance and Appropriations Committee co-chair Janet Howell of Fairfax predicted Youngkin's tax cuts would be “very controversial."

“We have a long list of unmet needs in the state, things that the General Assembly has promised over many years, but we haven’t delivered on. So this is our opportunity to live up to what we’ve already promised,” she said.

Youngkin — who has not publicly ruled out a possible 2024 presidential bid — ended his speech by urging lawmakers all facing elections in 2023 to work together.

“Over the next few weeks, will you be bogged down by the partisan rancor of an election year? Or will we all together rise above and demonstrate that, yes, we can get things done?” he said.