Virginia’s “Runaway” Budget Negotiators

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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].