The Policies of Youngkin vs. The Policies of McAuliffe and Northam: A Closing Case for the Future of Virginia

Posted on October 26, 2023 by Derrick A. Max
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In two weeks, the people of Virginia will decide on two competing visions for the future of Virginia. Will they elect a General Assembly favoring Governor Youngkin’s more freedom-oriented policy vision, or will they want to elect a General Assembly returning the Commonwealth to the statist policy vision of former governors McAuliffe and Northam? While much of the current debate in the Commonwealth has focused almost solely on abortion, the number of issues “on the ballot” in this election is much broader and ought to be more closely considered by voters. If readers want a deeper dive into these issues, links to the Thomas Jefferson Institute’s work in these areas are included.

Surpluses are on the ballot in Virginia

Earlier this year, faced with a historic $5.1 billion surplus, Governor Youngkin and Democrats in the Virginia Senate reached a deal to cut $1.05 billion in taxes and allocate $3.7 billion in new, one-time spending. This $3 in new spending for every $1 in tax cuts is backward. Budget officials in Virginia just reported that in the first quarter of this fiscal year, surpluses are continuing to be amassed in Richmond. Coupled with the official projections for spending and revenue for the next few years, the next General Assembly will almost certainly be faced with large surpluses. The winner in November will determine if excess funds are predominantly returned to taxpayers or mostly spent on greater government largess. Governor Youngkin has cut $5 billion in taxes since entering office two years ago, more than the combined tax cuts of McAuliffe and Northam over the previous eight years. More information from TJI on tax and spending can be found here, and here. and here.

Worker freedom vs. union control is on the ballot in Virginia

Approximately forty percent of Virginians now live in areas that have approved collective bargaining for public employees. This will divert needed public funds for schools, municipal services, and public safety to pay for full-time union employees whose sole job will be to bargain for higher wages and to protect often subpar employees. In Fairfax, Loudoun, Alexandria, and Portsmouth alone this is estimated to cost $5.5 million. These organizers will then push to divert county coffers away from public services and towards higher union employee salaries. As an example, the Richmond City union negotiated a 40 percent salary increase over the next three years, while Prince William is seeking a 17 percent increase for its teachers next year. Because unions routinely spend generously on political activity, Virginia’s elections will soon be dominated by union support for candidates that will divert even more money into union accounts. Northam signed the law approving collective bargaining in Virginia, while Governor Youngkin has made its repeal a priority. More information from TJI on unions and collective bargaining can be found here, and here, and here.  We also did a public education campaign for teachers here, and here.

Your right to drive an affordable vehicle is on the ballot in Virginia

Despite generous federal and state incentives, expensive electric vehicles (EVs) are less than 0.5 percent of cars on Virginia’s roads and just under 10 percent of new cars sold. Yet, under existing Virginia law, EVs must make up 35 percent of auto makers’ sales in just under three years and 68 percent in just under six years. Not only are these cars priced too high for most buyers in Virginia, but they are proving unreliable for longer commutes and road trips, and EV battery life and battery safety continue to be an issue. Northam signed the legislation deciding what kind of car Virginians are allowed to own, while Youngkin has sought its repeal. More information from TJI on electric vehicle mandates can be found here, and here, and here. We also did a public interest campaign on EVs here.

Reliable and affordable energy is on the ballot in Virginia

The Virginia Clean Energy Act (VCEA) mandates unrealistic and arbitrary targets and deadlines for the use of renewable energy in Virginia that even Dominion Energy now admits cannot be met. This is forcing the closure of several efficient, reliable carbon-producing energy facilities. Worse, Dominion has noted that the push for carbon-free energy significantly impacts the reliability of its energy supply as more of the Commonwealth’s energy will be dependent on intermittent energy sources like solar and wind power that can’t produce needed power without the right weather conditions. Worse, the unmet demand can’t be met by outside sources if other states also transition to intermittent renewables. Finally, the cost to build zero carbon energy in time for the VCEA deadline will increase the cost to residential ratepayers by over 80 percent. Northam signed the VCEA into law, while Youngkin has sought its repeal and has pushed for reliable and clean Small Modular Reactors as an added alternative. More information from TJI on energy can be found here, and here, and here.

Educational freedom and parental rights are on the ballot in Virginia

The Virginia Department of Education recently reported that there has been a significant and persistent learning loss in reading and math for Virginia Students in grades 3 through 8. This loss began before the COVID-19 closures and accelerated after. More than half of these students failed or are at risk of failing their reading SOL exam, while two-thirds are either failing or at risk of failing their math SOL exam. The most extreme decline is in Black and Hispanic outcomes, increasing the performance gap significantly. Other reports by the Department discuss the doubling of chronic absenteeism among students, similar absenteeism among teachers, and a growing number of teacher vacancies.  There is growing division between parents and schools over what their children are being taught, over well-documented issues of how schools have handled violence and violent students, and on a parent’s right to be told about decisions or actions their children are making while in school. Youngkin has fought to defend parents’ rights, pledged to ban the use of critical theory in schools, give parents more control over their children’s education, expand school choice through lab schools, and expand scholarships for low-income students. Northam and McAuliffe, on the other hand, focused on increasing funding for public schools, expanding access to early childhood education, and promoting equity and inclusion in schools. More information from TJI on education freedom can be found here, and here, and here, and here, and here.

How the above issues are handled by the next General Assembly could significantly shape the future of the Commonwealth for a generation — be informed!

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Virginia Tax Collections and Spending Just Keep Climbing

Posted on October 18, 2023 by Stephen D. Haner
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The recent unemployment rate and job growth trends for Virginia. The decline in adding jobs was cited by Secretary of Finance Stephen Cummings as a reason to remain financially cautious.

Virginia’s state budget grew 90% in the past decade, far faster than in previous decades. After adjusting for inflation and population changes, spending still jumped 4% each year, a high rate of compound real growth. At the same time, the state continues to see explosive growth in its revenue, pointing to cash surpluses continuing for some time.

These facts emerged from two presentations to the Virginia General Assembly this week. The Joint Legislative Audit and Review Commission (JLARC) issued its annual report on state spending growth on Monday. That same day, Secretary of Finance Stephen Cummings reported on the revenue results from July through September, the first quarter of Fiscal Year 2024.

In just those three months, revenue exceeded the revenue estimates by more than $412 million. Other months, with larger pots of projected revenue, are still ahead. Should this revenue trend hold, surpluses similar to the historic surpluses of Fiscal Years 2022 and 2023 could result next June.

During the elections two years ago, Virginia’s flush financial condition was inspiring debates about tax reductions and tax reform. Some, but not all, of the proposals went on to pass. But with General Assembly elections just over two weeks away, few candidates in either party are promising more tax reform or reduction efforts in the next session.

Secretary Cummings openly expressed the cautious attitude of Republican Governor Glenn Youngkin’s administration. Youngkin and Cummings last week heard their own advisory panel of economists report they expected no recession or at worst a mild one as the battle with inflation continues, but they apparently disagree.

Stubborn inflation is one reason Cummings cited, but they also are worried about the impact of the ongoing war in Ukraine, the new conflict between Israel and the terrorist army of Hamas, and the wave of strikes sweeping the U.S.

As has been the case for a while now, the strong revenue growth is mostly generated from the corporate income tax and that portion of the personal income tax paid by individuals through quarterly installments. Those revenues are usually from people earning income from businesses or investments. The portion of the income tax from payroll withholding is also growing, another good sign, but it is only about 1.4% ahead of projections.

Sales and use tax revenues for the quarter also showed only modest growth, but exceeded the official forecast that they would sink by almost 7%. That has not happened so far. For those who like details, here is the full set of financial summaries presented.

Cummings made the same presentation to the House and Senate committees that write the budget and tax rules. He received only one or two minor questions. The “bumps on a log” response from legislators, again, is very telling during this hot election season.  The Senate Finance and Appropriations Committee in particular is dominated by senior legislators who are not running for new terms.

The JLARC report on spending for Fiscal Year 2023, and for the decade of 2014-2023, included the claim that “average growth rates” it reported were “slightly higher than in prior decades.” Slightly? A look back ten years to the 2013 report points to obvious acceleration. For example, the General Fund side of the budget grew 38% in the decade ending July 2013, and then another 74% in the decade ending July 2023.

In dollars, spending grew from just over $17 billion in 2013 to just under $30 billion in 2023. But it doesn’t seem to be causing anybody any heartburn. Neither does the $81.1 billion total for last year.

Virginia splits things between the General Fund (GF), mainly the tax sources, and what is called the Non-General Fund (NGF), mainly federal funds, motor fuel and vehicle license fees, college tuition and fees, and state hospital revenues. The NGF side of the budget doubled, a full 100% growth, over the last reporting period. It went from $25.6 to $51.4 billion.

You can see the bump of massive federal funding related to the COVID-19 pandemic in the charts, but that abated substantially before FY 2023, the endpoint for the decade of comparison. Because of those Covid funds disappearing, total spending for FY 2023 actually dropped from the previous year.  The COVID dollars were all part of NGF.

The report covers where the spending growth has happened, and as usual, most of the growth in spending was in just a few agencies or programs: the Medicaid health services to the poor (11% per year), state payment to local public schools (6% per year), transportation (9% per year), and the premier universities (University of Virginia, 6% per year and Virginia Tech, 4% per year.) Those reflect total budgets which includes both federal funds and college tuition checks.

If we look instead at just the GF spending, the income and sales tax dollars, the pattern basically holds. The largest increases in this category were in public education assistance (6% per year), the state share of Medicaid (6% per year) and higher education’s general account (6% per year.) Health and education programs have gotten most of the new dollars by far and are usually the main focus of demands for even more.

JLARC actually started with the annual spending growth reports in 2002, and the first report looked at data as far back as 1981 (GF of $2.7 billion) and tracked 20 years of spending growth. The trend of spending growing faster than the state’s population and faster than inflation was already well established.

Can the trend be reversed, or at least can the rate of climb be reduced? Elections are the time when that proposition can and should be put to the voters.  Otherwise inertia rules.

Steve Haner is Senior Fellow for State and Local Tax Policy at the Thomas Jefferson Institute for Public Policy. He can be reached at [email protected].

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To Win Policy, Is it Time Conservatives Invested in Infrastructure?

Posted on September 27, 2023 by Christian Braunlich
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Governor Glenn Youngkin can take satisfaction from passage of the long-delayed Virginia budget.

As my colleague, Steve Haner points out, during his term of office Youngkin’s fight to increase the standard deduction will save the average Virginia couple up to $1,265 over three years, provide $900 in tax rebates, and eliminate the state share of the grocery tax (another $115 million in savings last year).

These results reduce taxes for nearly all Virginians from Dollar One.

But there must be some measure of regret at being unable to push through a more robust tax reform of the kind that made North Carolina the number one state for business, a state where the top corporate tax rate is 58 percent lower than Virginia and the top personal tax rate is nearly 20 percent lower.

In the competition for economic growth, lower taxes attract more businesses, more jobs, and more taxpayers to work at those jobs.   It is at least one reason North Carolina had a net in-migration of nearly 100,000 out-of-state residents.  Virginia?  Nearly 24,000 more left the Commonwealth for other states than arrived here.

While it would be mind-boggling if the GOP failed to run on cutting taxes, campaign ads are partisan – reminding voters already supporting tax cuts to vote for tax-cutters, and ignoring any explanation of why lower taxes are important.  Missing from this debate is a narrative that builds a coalition by explaining the value to individual Virginians of eliminating government-imposed burdens, freeing entrepreneurial activity, guaranteeing quality educational opportunity, and lowering the cost of goods and services through affordable and reliable energy.

Explaining these relationships isn’t easy.  While throw-away lines in speeches receive a day of news stories, hammering the message home is a year-round job.  No one did it better than Ronald Reagan, and he followed it up with campaign ads over and over and over again.  His words are still used today in contemporary issue campaigns.

Whether Virginia stays on the course towards steady tax reduction, accelerates, or lurches back onto the road to higher taxes depends on the outcome of November’s elections.    And while we’d dearly love to see more Democrats like centrist Chap Petersen in the General Assembly, the ideological cleaving of political parties makes it clear that the tax and economic outcome will mirror the partisan election results.

Left and Right have responded to this reality differently.  Conservatives continue to invest heavily in political parties and individual candidates, hoping for “wave elections” or candidates with unique skills and attractiveness pulling others across the finish line.

That certainly worked for the GOP in 2021.  But they will not always have a candidate willing to spend $20 million of his own money.  Or an opponent who makes the closing argument for them.

Progressives, meanwhile, have been building cultural and political infrastructures to survive any given election setback.  Instead of focusing exclusively on the next election or the next legislative session, they’ve looked over the horizon.

In The Blueprint:  How Democrats Won Colorado (and Why Republicans Everywhere Should Care) journalist Adam Shrager and former legislator Rob Witwer describe how The Centennial State turned from red to blue.  As two Weekly Standard writers noted:  “It’s about infrastructure….with backing from a handful of large donors, (Colorado progressives) built a network of specialized, coordinated nonprofits to fill the void. The results were stunning.”

Jon Caldara, president of The Independence Institute, observed that “They (Democrats) invested more money, but they invested it much more wisely.  Instead of just chasing candidates, they built infrastructure.”

The result was year-round issue policy education and issue mobilization that made a difference and did not rely exclusively on the politics of personality.   It also laid the groundwork for future elections, crafting the environment within which political decisions are made at the voting booth and on the legislative floor.

We see this strategy deployed in Virginia today.

Democrats and their allies of the Left are investing in Virginia through non-profits and messaging operations, starting with Michael Bills’ and Sonja Smith’s investment of more than $30 million in infrastructure promoting the Green Agenda – nearly $14 million in the ’22-’23 cycle alone.

In policy, more than $10 million from a handful of foundations and labor unions has poured into the Commonwealth Institute for Fiscal Analysis in just four years.   Much of that comes from funders affiliated with Arabella Advisors, described by The Atlantic magazine (hardly a right wing organ) as “the massive progressive dark money group you’ve never heard of.”

In 2020 alone, Arabella Advisors directed more than $2.2 million to non-profits supporting progressive efforts to build infrastructure and policy environment.

To be clear:  This is all legal.  It’s just a matter of where you get the biggest long-term bang for the buck.

Colorado’s Caldara pinpointed the difference: “Republicans in Colorado continued to put their money on racehorses, while the left just bought the racetrack.”

And for now, Republicans in Virginia are doing the same thing:  putting their money on racehorses each year … hoping for the right combination of track conditions, a good jockey and superb form.”

Whether that strategy will have long-term success in the Commonwealth may well be decided this year, but perhaps it is time for conservatives to begin focusing on infrastructure rather than individuals; policies rather than personalities.

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Virginia’s “Runaway” Budget Negotiators

Posted on September 13, 2023 by Derrick A. Max
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Fear of commitment is a common theme in Hollywood — where romantic comedies are replete with characters that sidestep long-term commitment primarily out of fear that someone better may come along. Think of Runaway Bride, where Maggie, played by Julia Roberts, keeps running away from her betrothed at the altar out of such fear. The budget amendments passed last Wednesday with bipartisan support and praise from Governor Youngkin are replete with commitment issues. The approved tax cuts and new spending were written to have very little impact beyond the current budget cycle. Like Maggie, both Governor Youngkin and the Senate Democrats are clearly standing at the budget altar hoping for better options after the November elections.

The approved amendments include $1.05 billion in tax deductions on top of the $4 billion in tax relief already adopted by the General Assembly last year for this budget cycle. My colleague, Steve Haner notes that many low-income earners in Virginia have now had their entire tax burden erased during the last two years. This is a huge amount of tax reductions under Governor Youngkin and should be celebrated!

The agreed-upon amendments increase the standard deduction for individuals by another $500 and $1,000 for couples which is estimated to be a $48 million tax reduction. It also provides Taxpayer Relief Checks of $200 for individuals and $400 for couples, a $906 million tax reduction. There are also modest adjustments to military retirement tax incidents and business interest deductions. In short, the vast majority of the cuts, over 85 percent, are one-time adjustments that will have zero impact beyond this year. Again, worth celebrating and a big boost to taxpayers, but of limited long-term impact.

Sadly, the budget amendments also include $3.7 billion in new spending. Yes, this means that there is almost $3 in new spending for every $1 in tax cuts (something that is hard to celebrate, but maybe the best one could do in a split General Assembly). And like the tax cuts, the majority of new spending approved in the budget amendments is for non-recurring activities that will have almost no impact on the new budget next year. For example, $644 million is allocated for one-time spending on natural resources, $420 million for one-time K-12 flexible spending (with the focus mostly on programs to reach literacy goals), $200 million for one-time commerce and trade expenses, $155 million in one-time behavioral health spending, and $190 million for higher education, among other new one-time spending appropriations. The amendments also include a 2 percent pay increase for state employees, including teachers at a cost of $115 million.

The budget amendments also reduce estimated surpluses to account for the cost of previously made tax cuts and to build emergency funds, and it reinstates the sales tax holiday for school supplies and hurricane preparedness (a popular tax cut, but one that is economically inferior to rate cuts, as pointed out by the Tax Foundation).

By not making many structural changes, like indexing the tax code for inflation as the Thomas Jefferson Institute has long advocated, and not making many long-term spending obligations, the General Assembly will likely be looking at similar surpluses next year and the year after assuming the economy continues to recover. Thus, the question of how those surplus funds will be spent or returned to taxpayers is left up to the winner of the November elections.

So, to belabor my Runaway Bride analogy, will the Richard Gere character of Ike in Virginia’s budget commitment comedy, be played by Glenn Youngkin and a Republican majority in the General Assembly, or by the Democrats if they should win control of Richmond? For Virgnian’s, let’s hope the handsome groom at the altar after the election supports the bride’s deep desire for greater and more permanent cuts in taxes and much less spending.

Derrick Max is President of the Thomas Jefferson Institute for Public Policy. He can be reached at [email protected].

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Tax Reductions Under Youngkin Have Been Significant

Posted on September 7, 2023 by Stephen D. Haner
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Governor Glenn Youngkin (R) and the legislators of both parties who have given him at least some of the tax reforms he asked for need to stop being shy and take a real victory lap. He has been in office less than two years and has diverted $5 billion from tax coffers back to Virginia’s citizens so far, with more to come in 2024 and beyond.

Most of that was approved by the 2022 General Assembly and is now in effect for a second full tax year, but the 2023 General Assembly just sweetened the pot. The long-delayed budget compromise approved September 6th added more than $1 billion in single-shot refunds and long-term tax cuts.

  • Two years ago, the standard deduction claimed by most Virginians paying income tax was $9,000 for a married couple, and that is now $16,000 and for Tax Year 2024 will go to $17,000. That saves that couple up to $1,265 over the three years.  It lowers total tax income taxes more than $1 billion per year.
  • People paying income tax (and remember many business operators pay on the individual tax returns) will now receive a second tax rebate. The rebate was up to $500 per couple for 2022 and will be another $400 for 2023, adding up to $900. They returned almost $2 billion.Looked at another way, that is equivalent to shielding more than $15,000 more of that couple’s joint income from tax.  For many low-income Virginians, their income tax liability was wiped out entirely.
  • The sales tax on unprepared food purchases was 2.5% two years ago and is now 1%. Basically, the state share of the tax is gone but the local tax remains.  That was estimated to save Virginians $115 million in the fiscal year that ended June 30.  Rising grocery prices make that tax break better every year.
  • Two years ago, Virginia provided no special tax treatment for military retirement pay. The 2022 General Assembly created a subtraction for that income, phasing in over a few steps, for retirees above a certain age. The 2023 compromise has now extended that tax break to younger retirees, who will eventually be able to shield another $40,000 of their income from tax. That was worth almost $145 million per year with the age floor, and without the age floor it is almost a $200 million annual tax break.
  • Two years ago, Virginia recognized the Earned Income Tax Credit, a federal provision that provides a major tax break for lower income people with jobs.  Now Virginia’s EITC not only lowers their taxes, but for some it provides a refund, in effect a grant to supplement their income.  The value of that to those families was pegged at $159 million in the fiscal year that ended June 30. It was not changed by the recent Assembly actions.

Those are five significant changes that reached virtually every Virginia household. Governor Youngkin had proposed far more tax relief, of course, and was left with only part of his plan.  Far more was financially possible, and the state finds itself with unprecedented cash balances despite giving up these revenues. These were the tax breaks for which he could garner bipartisan, bicameral support.

That bipartisan support started with Youngkin’s predecessor. Following Youngkin’s victory where he promised tax reforms, outgoing Governor Ralph Northam (D) prepared a draft budget that incorporated some of them, including the sales tax break on food and the refundable EITC. Having those baked into the introduced budget helped.

But the bipartisanship only went so far. The early roll calls on the approved provisions were hardly unanimous, the Virginia Senate during both years showed the greatest resistance to lowering revenues. Those who are seeking new terms may claim it was only a negotiating position and they were planning to agree eventually. The voters should think about that, at least.

The Democrats have attacked Youngkin’s failed plans to lower the top individual tax rate from 5.75 to 5.5%, and to lower the corporate income tax from 6 to 5%. The quarter point drop in the individual rate probably faltered because it was so small few taxpayers would get excited about it, and the business community greeted the corporate tax proposal with total silence and indifference. Their loss.

Between now and the election, just after they claim credit for various tax reforms they initially opposed, many candidates will now say something like “we put people over rich corporations.”  The line was trotted out during the recent special session. Corporations are just groups of people, and business taxes always come out of the pockets of human beings of all income levels, but those facts are lost to the voters they target.

Whether Virginia can continue to lower taxes will depend first on the election outcome and second on the continued performance of the state’s economy.  Both will be clear when Governor Youngkin makes his next major push to the legislature with the introduction of his first real budget bill in December.  As Cato always concluded with the demand that Carthage must be destroyed, the Jefferson Institute will always return to the demand that the Virginia tax code must be indexed to inflation.

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