The latest preliminary figures from the Virginia Department of Revenue put the current general fund budget surplus at more than $5.1 billion for fiscal year 2023, which ended June 30. This is more than double the $1.94 billion surplus the commonwealth posted in 2022. This huge surplus is money left over after every single item in the state budget was fully funded under the amended 2022 Appropriation Act, including education, health and welfare, transportation, public safety, and every department and program funded with state tax dollars.
This unprecedented revenue surplus was largely due to higher-than-expected payroll withholding of individual income taxes (which are still not indexed to inflation), as well as corporate and sales taxes.
In other words, Virginia taxpayers were overcharged $5.1 billion over the past two years and $3 billion more than the commonwealth’s own 2023 revenue forecast. And yet some members of the General Assembly, all of whom are up for re-election in November, don’t want to give any of it back.
This is akin to a merchant refusing to hand over the change when a customer paid more than the agreed-upon price of a purchased item. Virginians would be irate if a restaurant, bar, grocery store, or other private establishment decided to keep the change because the business might “need” the extra money in the future. Yet the General Assembly is attempting to do the same thing on a much larger scale.
The record budget surplus also undermines the argument that lowering taxes results in reduced state revenue. As Governor Glenn Youngkin pointed out, “Last year we provided $4 billion of tax relief for individuals, families, and veterans. What this year’s preliminary numbers tell us is that even after that historic tax package the Commonwealth ended fiscal year 2023 with $5.1 billion in excess resources, far more than forecasted.”
California is learning the hard way that overtaxing residents has unintended consequences. Unlike Virginia, California is now facing a $31.5 billion budget deficit after posting a $100 billion surplus just last year. But the state legislature spent all the surplus funds instead of returning the excess money to taxpayers. And wealthy Californians took notice.
In fact, in what is being called “The Great Wealth Migration,” the Golden State now has the largest net negative tax income migration in the U.S., losing $343.2 million in tax revenue as high-worth individuals took their money and moved to more tax- and business-friendly states such as Florida, Texas, and Arizona.
These are individuals who not only pay the bulk of state income taxes (the top 1 percent in California pay 50 percent of all state income taxes) but also have the means to start businesses and hire workers. Their loss is hard to replace.
In Virginia, after reaching an impasse in June, budget negotiators from the Republican-controlled House of Delegates and the Democrat-controlled state Senate met again in an attempt to iron out their differences. Republicans support Gov. Youngkin’s tax refund proposal; Democrats do not.
The Thomas Jefferson Institute for Public Policy has recommended that GOP legislators refuse to bargain away a tax refund this year. If the economy goes south or the commonwealth faces dire reductions in revenue, state legislators can cut spending, adjust taxes or do whatever is necessary at that time to make up the difference. They’ve done it before and they can do it again if necessary.
But allowing the commonwealth to overcharge taxpayers to the tune of $5.1 billion in unappropriated funds sets a terrible precedent. It tells future lawmakers that they can overcharge taxpayers with impunity.
Virginian taxpayers paid for everything the General Assembly included in their last budget. Now they want their change back. It’s as simple as that.
Barbara Hollingsworth is Visiting Fellow with the Thomas Jefferson Institute for Public Policy. She can be reached at [email protected].
- Virginians Want Their Change Back - August 9, 2023
- Destroying the Commonwealth in Order to Save it - June 27, 2023
- Time to index Virginia income taxes to inflation - November 14, 2022