House Finance Committee Advances Package to Ensure $950 Million in Middle-Class Tax Relief

From the office of Speaker Kirk Cox (R-Colonial Heights)….

The Virginia House of Delegates Committee on Finance advanced a package of legislation Monday to prevent Governor Ralph Northam’s middle-class tax increase and ensure $950 million in middle-class tax relief.

Legislation carried by Delegate Tim Hugo (HB2529) and Delegate Chris Jones (HB2533) works in tandem to ensure that all additional individual tax revenue from the Tax Cuts and Jobs Act is set aside in a Taxpayer Relief Fund and used to provide tax relief for those affected by federal and state tax law changes. The legislation also immediately conforms Virginia’s tax code to federal law in order to allow the tax filing season to begin without interruption.

“Since last summer, we have been united against Governor Ralph Northam’s plan to pass on higher taxes in order to finance new state spending,” said Speaker Kirk Cox (R-Colonial Heights). “The House Finance Committee acted today to set aside all of the individual income tax revenue from the federal tax cuts to ensure that we provide tax relief to those affected by federal and state tax law changes. I appreciate the leadership of Chairman Lee Ware, Caucus Chairman Tim Hugo, and Chairman Chris Jones on this important issue.”

“With tax filing season upon us, it is important that we act quickly to move forward on conformity,” said Finance Committee Chairman Lee Ware (R-Powhatan). “However, we cannot allow conformity to dictate the policy decision we face. By setting aside all revenue from federal tax reform, as Chairman Jones’s bill does, we can ensure that the General Assembly has an opportunity to debate clearly what we should do with this money. Our plan would guarantee tax relief, while Governor Northam uses it to finance $2.2 billion in new state spending. The choice for taxpayers is clear.”

“We will provide immediate tax relief to middle-class Virginians,” said Caucus Chairman Tim Hugo (R-Fairfax), the patron of House Bill 2529. “Our plan will allow taxpayers to itemize their state taxes regardless of how they file their federal return, increase the state standard deduction across the board, and maintain the important state and local tax (SALT) deduction as it exists today. This protects a middle class family that itemizes from what could be roughly a $805 tax increase or providing an additional $115 in tax relief to a family that chooses the standard deduction.”

“Though we recognize that we must act on conformity, we are committed to providing tax relief to those impacted by the federal tax changes. My legislation puts all individual tax revenues from conformity in a “Taxpayer Relief Fund” to ensure that it is not used for state spending,” said House Appropriations Committee Chairman Chris Jones. “The House budget that will be released on Sunday will not spend one dime of the increased individual tax revenues from the Tax Cuts and Jobs Act and I am committed to providing tax relief for middle-class families.”

House Bill 2529 (Hugo) Background

  • House Bill 2529 is designed to address the state issues related to the Tax Cuts and Jobs Act, prevent a hidden tax increase and provide middle-class tax relief for working Virginians.

  • The substitute has three main components:

    • Allows people to itemize regardless of how they pay their federal taxes

    • Increases the standard deduction by $1,000 ($3k to $4k) for an individual and $2,000 ($4k to $6k) for a married couple.

    • Leaves current law in place for state and local taxes, instead of capping them at $10,000

  • The substitute also:

    • Includes technical corrections to the SALT language

    • Eliminates an enactment clause made unnecessary by the conformity bill before the Committee

    • Eliminates a drafting error on mortgage interest deductions

    • Includes the “GILTI” subtraction to prevent a new tax on foreign income for businesses

  • This bill would provide about $575 million in tax relief, beginning in the next fiscal year. But even after this tax relief, the state would still take in more revenue in FY20 than it did in FY19 – by $37 million.

    • By allowing people to continue to itemize, we ensure people are not hit with a hidden tax increase. For a married couple of homeowners each making $55,000 per year, this provision would prevent about an $800 tax increase.

    • By raising the standard deduction, we are providing tax relief to anyone who claims the standard deduction, but mostly for low and middle-income Virginians. This will provide a married couple $115 in tax relief.

    • By maintaining the current rules on SALT, we protect homeowners from getting hit with a second tax increase at the state level. The federal law caps deductions at $10,000 – a major issue where I am from in Northern Virginia.

  • HB2529 is a prospective, policy bill. This bill deals only with tax year 2019 and beyond, and seeks to provide middle-class tax relief.

  • HB2529 bill does not address the 2018 tax year. That revenue, approximately $375 million, is set aside in the Taxpayer Relief Fund by the conformity bill before you.

  • HB2529 did not address this out of simplicity. While we stated very clearly we wanted to resolve this very quickly this session, it is past the point of no return.

  • The hope would be to use this $400 million to make whole taxpayers, particularly itemizers, who get hit in tax year 2018.

House Bill 2355 (Jones) Background

  • House Bill 2529  moves Virginia’s fixed-date conformity with the federal tax code to December 31, 2019 and captures all additional revenues resulting from changes to individual income tax provisions in the “Taxpayer Relief Fund.”

  • House Bill 2529 includes an emergency clause so the act goes into effect upon its passage.

  • The plan would capture $952 million into the “Taxpayer Relief Fund,” which represents 100% of the limited-time individual provisions of the Tax Cuts and Jobs Act.

  • The legislation also includes an enactment clause to require the Department of Tax to develop a plan by August 1, 2019 to refund revenues in the fund to taxpayers.