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March 7, 2022

Kenneth: State budget must make investments in Virginia communities, not unrealistic tax plan

This op-ed originally appeared in The Roanoke Times

Over the coming days, Virginia’s legislature will negotiate a budget agreement between substantially different House and Senate budget plans. This debate isn’t just a matter of crunching numbers on how to utilize the budget surplus; it’s a critical choice for the direction of our commonwealth.

Virginia can choose to make long-overdue investments in our schools and communities along with economic relief for those who need it most. Or, we can choose a risky tax cut package that threatens our long-term fiscal health, and fails to make the investments we need.

poll last month by Christopher Newport University’s Wason Center shows that 59% of Virginia voters support using the budget surplus on underfunded government services, and just 38% support using it on tax cuts.

Either way, those decisions should be informed by a clear-headed look at the fiscal choice in front of us. A recent Roanoke Times’ guest opinion column (Feb. 10, “Youngkin should go big on cutting taxes”) advocates for an aggressive tax cut package, including doubling the standard deduction on income taxes. However, the column relies on inaccurate math, in an attempt to minimize the budget impact of such a massive tax program.

The column erroneously claims that the standard deduction would have a $681 million impact on the budget. In fact, this is a one-year figure for a two-year budget — and it is out of date.

The Virginia Department of Taxation’s official analysis on Jan. 23 estimated the biennial cost of doubling the standard deduction to be approximately $2.1 billion.

That massive $2.1 billion cost is included in the House of Delegates budget proposal announced in late February, but not in the Senate proposal. Instead of the standard deduction, the Senate makes substantially larger investments than the House in key needs for the Roanoke Valley and Southwest Virginia: more than $200 million more from the state general fund for school construction, $210 million more for educational support of school divisions with larger shares of their students living in poverty, and $140 million in additional funds for need-based financial aid at public colleges and universities. In fact, the House budget spends three times as much on the standard deduction ($2.09 billion) as it does on increasing teacher pay ($682.6 million).

These plans would prevent Virginia from funding crucial priorities — especially those key to the Roanoke Valley and Southwest Virginia — and would also fail to help our friends and neighbors who are in need of economic relief.

The Senate plan reduces taxes in a much more efficient way, targeted toward those who need it most.

The Senate budget would provide a fully refundable Earned Income Tax Credit (EITC), a tax cut averaging $500 specifically to support working people with low incomes and help them cover basic necessities like groceries, utility bills, and other basics.

Making the state EITC refundable — as it is in 25 other states, the District of Columbia, and Puerto Rico — would return more than $200 million each year to the pockets of people in the community and spread that money throughout the local economy.

Southwest and Southside Virginia would benefit substantially from the Senate plan. Southwest and Southside localities contain some of the highest percentages of Virginia taxpayers who receive the federal EITC: 25% of Roanoke taxpayers, 27% of Lee County taxpayers, and 33% of Danville taxpayers receive the federal EITC, compared to the state average of about 15%. Many of these residents — especially in Southwest and Southside Virginia — would benefit from improving the state version of the credit.

By contrast, the House plan to double the standard deduction would provide little benefit to the working people and their families with the lowest incomes. About 800,000 taxpayers in Virginia make less than $24,000 and are bearing the brunt of today’s economic challenges. The doubled standard deduction would fail to reach about 80% of these 800,000 taxpayers — offering no help to those who need it most.

The House plan would also cost substantially more: $2.1 billion for the doubled standard deduction, compared to $420 million for the refundable EITC.

Budgets are moral documents that highlight who and what we value. We need to rely on real data and make a fiscally responsible decision about how to provide economic relief most efficiently and invest in core priorities. Improving the EITC provides the best way to do that while preserving Virginia’s fiscal health.

Ashley Kenneth

ashley@thecommonwealthinstitute.org

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