Bolling: Gov. Youngkin’s Budget and the Current Economy
If you are Governor of Virginia, you pray every day for a strong economy. When the economy is growing you have money to invest in key state programs, and you can even propose tax relief for families and businesses. If the economy is in decline, the opposite is true.
I saw this from both perspective during my two terms as Virginia’s Lieutenant Governor.
During my first term, from 2006-2010, Virginia’s economy was struggling, and then Governor Tim Kaine had to make difficult choices about the Commonwealth’s spending priorities.
But during my second term, from 2010-2014, Virginia’s economy was growing, and then-Governor Bob McDonnell was able to invest in important state programs and provide tax relief at the same time.
Fortunately for Governor Glenn Youngkin, Virginia’s economy is currently growing. In fact, it is estimated that we will end the current fiscal year with a budget surplus of $3.6B! Whether a Governor enjoys a robust economy, or a declining economy is largely the luck of the draw, but so far, Youngkin has been lucky!
Yesterday, the Governor proposed his budget amendments for the 2023 and 2024 fiscal years to the General Assembly’s money committees. The Governor’s proposals, predictably, reflected a strong economy, and that means more spending on key programs and targeted tax cuts for families and businesses. Among the Governor’s key proposals were the following:
The Governor has proposed about $1B in tax cuts, including:
• Increase the standard income tax deduction for an individual from $8,500-$9,000 and for married couples from $17,000-$18,000. (These deduction were also increased last year)
• Decrease the top marginal individual income tax rate from 5.75% to 5.5% at a cost of $700M/year
• Exempt the first $10,000 of income for veterans, regardless of age. (Last year the General Assembly agreed to approve this exemption, but only for veterans above the age of 55)
• Reduce the state’s corporate income tax rate from 6% to 5% at a cost of $340M/year
• Provide a deduction for the first 10% in income for certain small businesses (The details of this proposal have not been released)
I suspect the General Assembly will approve some of these proposals and modify or reject others. I would specifically note the following:
Decreasing the top marginal individual income tax rate from 5.75% to 5.5% would save some money for Virginia’s higher income earners, but it would do little for lower income earners. Perhaps a better approach would be to increase the standard deduction for all taxpayers to $25,000 to match the current federal deduction limit.
I’ve always been very “pro-business,” but I honestly question the need to reduce Virginia’s corporate income tax rate from 6% to 5%. Our current 6% rate is already among the lowest in the nation, although it is higher than North Carolina’s corporate income tax rate of 2.5%, which I suspect is driving the proposal. However, if a business is inclined to invest in North Carolina because of their 2.5% corporate tax rate, I doubt that they would choose Virginia even though our rate was 5%, as opposed to 6%. I think this money could be better invested in other tax cut programs for individual taxpayers.
The Governor has also proposed some new spending initiatives in his budget recommendations, including:
• $450M for mega site acquisition to enhance Virginia’s ability to attract large economic development opportunities. This is something we were also focused on when I served as Virginia’s Chief Jobs Creation Officer.
• $428M for public education, which would be targeted toward the hiring of additional reading and math specialists, as well as additional funding for new “Laboratory Schools” the General Assembly approved last year.
• $170M for “recruitment bonuses” for teachers, nurses, and law enforcement.
• $233M to advance reforms of Virginia’s mental health system, and
• $674M for environmental programs that are targeted toward improving water quality in the Chesapeake Bay. (This money is constitutionally required to be deposited into the Water Quality Improvement Fund anytime Virginia experiences a budget surplus.)
Again, I suspect the General Assembly will approve many of these spending initiatives, while they may modify others.
Overall, the Governor’s budget recommendations appear to be sound. A Governor’s greatest power is setting the agenda for how Virginia spends its tax revenues.
BTW, did you know that Virginia’s current state budget for the 2022-204 fiscal years is almost $160 billion?