Virginia lawmakers reach compromise without Youngkin tax cuts

August 30, 2024

RICHMOND — Top negotiators for Virginia’s House and Senate announced Friday that they had struck a long-delayed budget deal that dismisses Gov. Glenn Youngkin’s quest for $1 billion in recurring tax cuts and provides one-time tax rebates instead.

Few details were released as budget leaders and their staffs planned to spend the next few days putting the final touches on the plan, which would tap a state surplus upward of $3.6 billion for a mix of new spending and tax relief.

Among the scant disclosures: The deal would provide a one-time rebate of $200 for individuals and $400 for joint filers, and would increase the standard deduction to $8,500 from $8,000 for single filers and to $17,000 from $16,000 for married couples filing jointly. Negotiators also noted that they agreed to a sales tax holiday and higher spending on education and mental health.

The deal still needs to pass a divided Capitol and get Youngkin’s approval before it can take effect.

The announcement came nearly two months after the start of the state’s fiscal year and two days after Youngkin (R) publicly backed off a goal of recurring tax cuts that he said would have cost the state about $1 billion a year. The governor conceded to reporters on Wednesday that he would settle for about that amount in one-time tax rebates, which Democrats insisted would be more prudent in an uncertain economy.

Youngkin said he backed away from his demand with the hope that the legislature would agree to permanent cuts in the next budget, but he has no guarantee, with control of both chambers up for grabs in Nov. 7 elections.

Youngkin says he would accept one-time tax rebates as budget deal nears

“The deal is one that provides Virginians with additional tax relief and unprecedented investments in education, natural resources, and behavioral health. It is a win-win for the citizens of Virginia,” according to a statement released by the trio of legislators who hashed it out: House Appropriations Committee Chairman Barry D. Knight (R-Virginia Beach) and Senate Finance and Appropriations Committee Co-Chairs Janet D. Howell (D-Fairfax) and George L. Barker (D-Fairfax).

Youngkin is expected to call legislators back to Richmond for a special session to consider the deal, but spokeswoman Macaulay Porter said there was nothing to announce yet.

“Virginians welcome the news that the conferees have come to an agreement on a framework that builds on the governor’s work to deliver historic investments in education and mental health while providing significant tax relief which will reduce the cost of living in the Commonwealth,” she said in an email.

The budget passed last year cut $4 billion in taxes, including the elimination of a 1.5 percent statewide tax on groceries. It also included big increases in the standard deduction for personal income tax, raising it to $8,000 from $4,500 for individuals, and to $16,000 from $9,000 for couples filing jointly.

The spending plan Youngkin proposed for this year’s General Assembly session sought $1 billion more in new tax cuts, including cuts in corporate and top individual tax rates. The Republicans who narrowly control the House followed Youngkin’s lead, but the Democrats with a slim majority in the Senate wanted more money invested in public services.

The General Assembly adjourned Feb. 25 without a budget, and the impasse stretched past the start of the new fiscal year on July 1. No government shutdown ensued because the state operates on a two-year budget cycle. At the halfway point of the two-year budget passed in 2022, the legislature has been haggling over adjustments to a spending plan already in place. Without agreement on amendments, the state simply operated on the original budget.

But that left at least $3.6 billion in higher-than-expected tax revenue just hanging. Youngkin says that since the legislature adjourned, the surplus has surpassed $5 billion. Howell has accused the governor of “voodoo estimating” that does not account for certain state obligations. Budget leaders from both chambers indicated that they would continue to base their plan on the original figure.

On Friday, the budget leaders said they would remove an age requirement for an exemption on military retirement pay and reinstate the annual sales tax holiday that usually takes place in time for back-to-school shopping.

Virginians to miss tax-free school shopping as budget impasse drags on

“We also prioritized investments in education at all levels to ensure that our students recover from pandemic learning loss and are workforce ready,” the statement from Knight, Howell and Barker said. “In higher education, we are providing additional operating support to maintain college affordability and increased financial aid to ensure access is not limited due to family income.”

The negotiators characterized their agreement as “fair and balanced toward the priorities of the House and Senate,” noting that in “an era when partisanship often prevails, the negotiations were cordial and respectful.”

House Minority Leader Don L. Scott Jr. (D-Portsmouth) took a sharper tone, claiming victory over Youngkin’s attempt to cut corporate taxes and blaming Republicans for the protracted nature of the negotiations, which broke down entirely in late June but resumed about a month later.

“With their irresponsible demands for corporate tax cuts, the Governor and the MAGA Republicans in the House almost derailed the entire budget process,” Scott said in a written statement. “Luckily, Democrats stood strong and we were able to make them come back to the table to take care of our priorities right now. This budget invests in our kids, not corporations, taking the Commonwealth forward, and not backwards like the VA GOP are attempting to do.”

House Speaker Todd Gilbert (R-Shenandoah) called the announcement “encouraging” in a written statement that also said the legislature was “closer than ever before to providing real tax relief to Virginia families who are being squeezed by inflation and other skyrocketing costs, and providing historic levels of support for our schools.”

But he stopped short of endorsing the deal before all details were known.

“While the conferees have reached a deal to present to the General Assembly, both chambers of the legislature and the public still need to review a final agreement,” Gilbert’s statement said. “Additional discussions regarding a potential special session will also need to occur over the coming week.”

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