Many Virginians are learning they will likely see an increase in their state income taxes when they file their 2018 tax returns, while we learned last week that Amazon will begin receiving hundreds of millions of dollars in public incentives to move part of its headquarters to Northern Virginia.
Eight hundred million dollars ($800 million) in public incentives, to be exact.
That is how much it is costing Virginia to bring Amazon and part of its anticipated $2.5 billion headquarters to Crystal City in Northern Virginia. It was announced last week that Amazon and the Commonwealth agreed to an incentive package that is filled with all sorts of grants and tax breaks in exchange for promises to build a 4 million square foot facility and create at least 25,000 new jobs. This is welcome news for Northern Virginia and those 25,000 new employees who are promised to earn at least $150,000.
But what about the rest of Virginia? What does the Governor and the General Assembly intend to do next year to provide much needed tax relief to many hard-working Virginia taxpayers all across the Commonwealth who will likely see an increase in their income taxes this year?
While the federal Tax Cuts and Jobs Act (TCJA) jump-started the national economy by cutting individual and corporate income tax rates, increasing the standard deduction, and making numerous other adjustments, it inadvertently created a tax disparity for Virginians by eliminating or reducing certain federal exemptions and increasing the federal adjusted gross income (AGI) for many taxpayers, which is the starting point for the Virginia tax return. The TCJA compensated federal taxpayers for these adjustments by nearly doubling the standard deduction, but Virginia made no such changes to its own tax code, including its own standard deduction which is not even half of the new federal standard deduction.
What does this mean for individual and married couples when they file their Virginia tax return in 2019?
Since Virginia requires taxpayers to follow the same filing statuses they use for the federal return, and it is likely that more taxpayers will switch from itemized deductions to the higher standard deduction, many Virginians will be forced to use a much smaller state standard deduction. So, while federal taxes may be lowered for many Virginians in 2018, a portion of that relief could be offset by an effective increase in state taxes from unadjusted state tax provisions.
Secretary of Finance Aubrey Layne is projecting that this will lead to a tax surplus of $594 million in 2019, and growing to nearly $1 billion by 2024. Policymakers are now trying to decide what to do with this anticipated windfall. The Governor’s plan is to use the additional revenue to make the Earned Income Tax Credit (EITC) refundable, but that would only benefit a very small portion of Virginians, specifically ones who currently pay little to no income taxes. Not surprisingly, some members of the General Assembly want to use the additional revenue to pay for increased Medicaid costs, education and other programs.
The obvious solution should be tax reform measures that would benefit all Virginians!
The Family Foundation believes that the fair and equitable decision should be to return the “windfall” back to all Virginia wage-earners who helped create it. Let’s reform an antiquated tax code and eliminate the tax disparity that is likely to impact many Virginians this year. We believe the Thomas Jefferson Institute’s (TJI) tax reform plan released yesterday offers the commonsense adjustments to Virginia’s tax code that will provide needed relief to many individuals and small businesses across the Commonwealth.
Here are the primary reform measures that the TJI tax plan proposes: i) conform Virginia’s tax code to the federal tax code and the TCJA; ii) increase Virginia’s standard deduction from $3,000 to $6,000 for individuals and from $6,000 to $12,000 for married couples filing jointly; iii) reduce the corporate tax rate from 6% to 5.5% beginning in 2019; and iv) indexing Virginia’s individual tax brackets, personal exemptions and standard deduction to increase with the rate of inflation.
We strongly support this tax reform proposal because it will allow Virginians to keep more of their own money to use in the way that makes the most sense for themselves and their families.
If politicians recognized that an incentive package with tax relief was needed to lure a TRILLION dollar company like Amazon to Northern Virginia, then they should also recognize that hard-working Virginians are also in need of some tax relief to lessen their financial burdens.