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Youngkin proposes $1 billion in tax cuts, higher spending in budget plan

Virginia Gov. Glenn Youngkin speaks during an event in November. He presented a budget proposal to state lawmakers on Thursday. (Emily Ball/AP)
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RICHMOND — Gov. Glenn Youngkin (R) is proposing $1 billion worth of tax cuts as part of a wish list of changes to the two-year state budget that he said are aimed at making Virginia more competitive with other states.

The cuts would be on top of $4 billion in tax reductions the General Assembly approved and Youngkin signed into law earlier this year. They would hit at a time when Youngkin said he expects the national economy to face a downturn or even a recession, a prospect that many lawmakers have said makes them leery of reducing state revenue.

The proposed cuts could help burnish Youngkin’s image as a fiscal conservative ahead of his potential run for president in 2024.

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At the same time, Youngkin is proposing new spending for priorities such as wooing economic development, providing bonuses for teachers and law enforcement officers, remaking the state’s mental health-care system, and cleaning up the Chesapeake Bay.

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Youngkin said in an interview that because of economic uncertainty, he has designed his spending plan as an “accordion budget” that can flex or contract if conditions change. Out of some $3.6 billion in tax cuts and “targeted spending,” he said, $1 billion “is conditioned on hitting our [revenue] numbers on June 30. That’s the way we budgeted our businesses when I was running the Carlyle Group.”

Youngkin stepped down in 2020 as co-chief executive of Carlyle, a private equity investment firm, as he prepared to run for governor.

Youngkin outlined his proposals Thursday morning to members of the General Assembly’s money committees, who will consider them as amendments to the state’s two-year spending plan when the legislature convenes its next session on Jan. 12.

The governor wrapped up his presentation with a call for bipartisan cooperation — but with a nod to the fact that the General Assembly will face sweeping elections next fall.

“I want to ask you to join me over the next months in the spirit of partnership,” Youngkin said in his speech. Or, he added, “will you be bogged down by the partisan rancor of an election year?”

He followed that question with what could be seen as a political comment of his own, noting that “the spirit of Virginia is alive and well” — Spirit of Virginia being the name of his political action committee.

Youngkin will need Democratic support because that party controls the state Senate and could block any of his initiatives, while Republicans control the House of Delegates.

“I think … we have a good beginning spot with this budget,” said Sen. Janet D. Howell (D-Fairfax), co-chair of the Senate Committee on Finance and Appropriations. The ambitious tax cuts, though, “will become very controversial,” she added.

“We have a long list of unmet needs in this state” that should be addressed before cutting state revenue, Howell said, mentioning higher education and teacher pay as particular areas that need attention. “We need to dig into the numbers and see what we can do. But this was a good beginning.”

Other Democrats immediately pushed back on the plan.

“Youngkin speaking about the importance of teachers is the definition of irony,” Del. Eileen Filler-Corn (D-Fairfax) tweeted with a reference to some of the governor’s complaints about K-12 education, which led to his short-lived tip line for reporting on teachers who promote “divisive concepts” in the classroom. “It’s as if he hasn’t heard his own rhetoric for two years going back to his campaign.”

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Youngkin is proposing to increase the standard income tax deduction for an individual to $9,000, or $18,000 for married couples filing jointly, which would accomplish a campaign promise to double those amounts. Earlier this year, the General Assembly got most of the way to his goal, setting the deductions at $8,500 and $17,000.

Youngkin also would decrease the top marginal tax rate to 5.5 percent from 5.75 percent, a savings for higher earners that would come at a cost to the state of $330 million in the current budget and $700 million per year thereafter, according to Youngkin administration staff estimates.

But that proposal is one of Youngkin’s “accordion” items: It would only go into effect if the state meets revenue estimates.

In addition, Youngkin is proposing to make up to $10,000 of military retirement pay deductible for all veterans with no age requirement. This year the General Assembly approved his proposal to exempt that amount for veterans 55 and older.

His budget plan also would cut the state corporate tax rate to 5 percent from 6 percent, at a cost of $362 million in the current budget and $340 million a year thereafter, according to Youngkin aides. Youngkin also proposes creating a new 10 percent income tax deduction for certain small businesses.

Youngkin and his staff described the budget plan to reporters Wednesday evening on the condition that they not be published until after he officially unveiled them the next morning.

“We accomplished a lot this year and I’m pleased with the big steps we’ve taken, but we’ve got to do a lot more and a lot faster,” Youngkin said in the interview. “This is all about delivering for Virginians. It’s about competing to win, not just competing.”

Youngkin pointed out that the state has a budget surplus of $3.6 billion and said he wants to invest it in helping create jobs and attract businesses to boost the economy. He proposes adding $450 million to Virginia’s $150 million fund for acquiring and preparing major sites for business development — but said $250 million of that increase would be conditional on state revenue performance.

His proposed amendments include a plan to consolidate workforce development efforts into a single new agency, uniting programs that now stretch across several departments.

Youngkin also proposes spending nearly $428 million on public education to add reading and math specialists to certain K-12 grades to offset learning losses suffered during the pandemic shutdowns and to pay for “lab schools,” which are his idea for partnerships between classrooms and institutions of higher learning.

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He is proposing some $170 million in additional state spending for recruitment and performance bonuses for what Youngkin calls “quiet heroes”: teachers, nurses and members of law enforcement.

And Youngkin is proposing two major new initiatives: $233 million to overhaul the state’s troubled behavioral health services system, and $674 million to complete the state’s goals of cleaning up the Chesapeake Bay and fund other environmental programs.

A few items are notable for not being included in Youngkin’s spending plan. He made no effort to revive his goal to eliminate the 1 percent tax on groceries that localities may levy; earlier this year the General Assembly cut the state’s 1.5 percent grocery tax. And there is no mention of Youngkin’s earlier unsuccessful efforts to suspend the state’s gasoline tax.

There is also no extra money for affordable housing programs, despite the fact that Youngkin has identified the need to increase access to affordable housing as a priority. Instead, Youngkin said he wants to work to change policies in localities to open more land for development.

“Our affordable housing initiatives are very focused on transparency and incentivizing faster work at the local level when it comes to permitting,” he said.