RICHMOND — Republican House leaders on Friday proposed state tax breaks that they said would help middle-class and lower-income Virginians reap the full benefits of the federal tax overhaul championed by President Trump.
The measures run counter to proposals by Gov. Ralph Northam (D), who considers the federal tax changes a $1.2 billion windfall. He wants to spend half of that on a tax break for households making less than $54,000 a year and use the rest for “historic” investments in the state’s reserve fund, schools and other government programs.
House Republicans regard Northam’s plan as a stealthy tax hike on “middle-class” taxpayers, which they define as households with earnings between $125,000 and $150,000 a year; the state’s median household income is $54,000. In a conference call with reporters, they proposed changing the state tax code so that individual taxpayers who got a break from the Trump tax cuts don’t lose the savings to Richmond.
“We are offering a responsible plan to stop Governor Ralph Northam’s middle-class tax hike and provide targeted tax relief to middle and low income Virginians while protecting the state’s AAA bond rating,” House Speaker Kirk Cox (R-Colonial Heights) said in a written statement.
Northam spokeswoman Ofirah Yheskel said the governor would review the plan.
The question of how Virginia should respond to the federal tax overhaul is likely to dominate the 46-day General Assembly session that begins Wednesday, complicating efforts to make the usual midpoint amendments to the state’s $117 billion two-year spending plan, which was approved in May and took effect July 1.
The federal tax overhaul limits deductions on mortgage interest and property taxes and doubled the standard deduction to make up for those changes, probably making the standard deduction more appealing. Under current law, Virginians who take the standard deduction on their federal returns must do the same on their state tax returns, which would lead to higher state tax bills because Virginia’s standard deduction remains unchanged.
The House Republicans’ plan would allow taxpayers to itemize on their state taxes regardless of whether they do so on their federal returns. It also would increase the state standard deduction from $3,000 to $4,000 for individuals, and from $6,000 to $8,000 for a married couple.
If Virginia leaves its tax code untouched, an extra $1.2 billion will pour into the state’s coffers every two-year budget cycle until the federal cuts partially expire in 2024.
The $1.2 billion comes from federal tax changes on not just personal income but also business and foreign income. The Republicans’ plan applies only to personal income taxes, which represent $975 million of the $1.2 billion. Their plan would return 98 percent of that to taxpayers. They said they hoped to address business and foreign income taxes later.