(The Center Square) – Although Virginia has already earmarked most of its budget surplus for spending on government programs, Gov. Glenn Youngkin intends to set aside nearly $400 million for tax reduction.
The commonwealth closed its fiscal year with about $2 billion in unplanned revenue and spent about $1.2 billion less than was expected, which left the government with a total surplus of $3.2 billion.
Most of that money will go toward increased spending on government programs: $1.2 billion will be reappropriated, $900 million will go to the rainy day fund and about $600 million will go to various legislature-approved projects, which will include offsetting losses to the Virginia Retirement System, widening Interstate 64, offsetting projected inflation-driven cost hikes for capital projects and other spending priorities.
With the money left over, Youngkin intends to provide about $397 million in tax relief for Virginians.
“The right thing to do is return unplanned revenue to taxpayers,” the governor told lawmakers in a joint House and Senate money committees hearing. “Again, it’s not our money. It belongs to the hard-working taxpayers of Virginia. …When government collects more money than it anticipates and rightfully spends less than it plans, it only makes sense to give the money back to the people who earned it.”
Stephen Haner, a senior fellow for state and local tax policy at the free-market Thomas Jefferson Institute, told The Center Square a lot of the higher tax collections are driven by monetary inflation, rather than economic growth.
“The best first step is to index Virginia’s income tax provisions to inflation,” Haner said. “Inflation is driving much of the higher tax collections because Virginia does not adjust the tax code to protect people from it.”
Haner added lawmakers should cut taxes, but also must learn spending discipline.
“The Governor is correct that the explosion in revenue is a sign the people of Virginia are being overtaxed, but the hard part is going to be convincing the legislature not to keep increasing spending,” Haner said. “In the past 15 months the state collected $6.2 billion more than it expected, and all but $400 million of that is already gone, either spent or put into reserves. Without some discipline on the spending side, reducing taxes will be a challenge.”
In the most recent budget, lawmakers approved about $4 billion in tax relief, but also increased spending on education, law enforcement, economic development and various other projects.
“I remain firmly committed to working alongside each of you, delivering for Virginians together,” Youngkin said. “Our shared priorities: lowering the cost of living, giving our children the education that they deserve, keeping our communities safe, creating jobs and growing the economy and transforming government to serve the people. These will not change. This will result in a stronger commonwealth, making us the best place to live, work and raise a family.”
The governor will submit a budget proposal to lawmakers in December.
