(C) Virginia Mercury
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New tax proposal hurts Virginians – and for what reason? [1]
['More From Author', 'January', 'Grady Martin']
Date: 2024-01-09
Look, I get it: taxes are boring. The only thing worse than paying taxes is reading about them. Although taxes are important, their admittedly boring nature means many of us overlook them. But we shouldn’t overlook Gov. Glenn Youngkin’s newly released tax proposal. While Youngkin hopes it could be his first major legislative win, in reality, his plan hurts Virginians across the commonwealth – especially our most vulnerable residents.
The proposal has three major components. First, a 12% income tax cut for all taxpayers. Second, a .9% increase in sales tax meant to partially offset the income tax cuts. And third, an expansion of the categories of purchases to which Virginia’s sales tax applies. All told, his proposed policy would result in a net tax cut of just under $600 million in 2025.
On its face, this isn’t a bad proposal. Virginia finished the 2023 fiscal year with $5.1 Billion in excess resources, according to the office of the Governor. And while I loved cashing my tax rebate check last year, it makes sense to just avoid collecting unnecessary taxes in the first place. But the structure of Gov. Youngkin’s proposal means low- and middle-income Virginians would be hung out to dry.
At its core, Youngkin’s plan shifts the tax burden, reducing the amount wealthy Virginians pay while making everyone else pay more. Income taxes are what’s known as a progressive tax: the more income you make, the higher percentage of that income is taxed. Sales taxes, on the other hand, are regressive.
Everyone, regardless of income, pays the same sales tax rate when they go to the grocery store. But low-income families spend a much higher percentage of their income on groceries and other essentials. As a result, low-income families devote more of their wealth to a sales tax than higher-income groups.
Proponents of sales taxes argue that despite their regressive nature, these taxes can still benefit low-income Americans. Because wealthy Americans spend so much more money than low-income groups, despite the fact that their consumption is less as a percentage of their total wealth, they still pay more into public welfare programs. 10% of $10,000 is smaller than 5% of $100,000. So on the net, money flows into needier pockets.
But Youngkin’s proposal doesn’t create new widespread public welfare programs – these are tax cuts after all – so there doesn’t seem to be a good reason to make Virginians pay more in the checkout line. And it makes even less sense to increase sales tax when so many Virginians struggle with rising grocery costs. While inflation has cooled off since the pandemic’s peak, supermarket prices rose 4.3% between August 2022 and August 2023. Plus, according to federal data, food insecurity sharply rose in Virginia in 2022. Youngkin’s cuts, besides reducing the possible funding for food assistance programs, would further worsen food affordability in our state.
What would the money from these sales taxes be spent on? Youngkin’s plan includes some laudable efforts, including increased funding for child care and behavioral health initiatives. But his most notable economic milestone in recent weeks was the announcement of a nonbinding agreement to move the Capitals and Wizards from Washington, D.C. to Alexandria, Virginia. The project would include $1.35 billion in state and local funding for a new sports complex; that’s more public funding than has ever been given to a comparable facility.
So, to summarize, Youngkin’s tax plan takes money out of the pockets of everyday Virginians, many of whom are struggling with food insecurity, in order to lessen the taxes paid by Virginia’s wealthiest, while also funding the most expensive sporting complex in the state, which is located in the wealthiest part of the state, where many Virginians won’t ever be able to see a game, in part because his sales tax increases will make tickets, sodas and hot dogs even more expensive than they already are.
Virginians deserve a tax plan that works for all Virginians, not just those in Gov. Youngkin’s tax bracket. Fortunately, leadership in the General Assembly is already mounting a response. Incoming House Speaker Don Scott has called for changes to the policy so it would protect “the financial interests of all citizens.” And because Democrats hold majorities in both houses, Youngkin will have to moderate his proposal when negotiations begin. But for now, even if it’s not the most entertaining topic in the world, Virginians everywhere should be alert as to how their tax bill might change next year.
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