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Will Virginians Have An Additional January Sticker Shock?
By Stephen J. Rossie

Square2017 imageRichmond – If the first House or Senate Finance Committee meeting you ever attend is the first one of a General Assembly session and you see the members quickly and unanimously report a bill that seems otherwise complex and without much discussion, you might think those committees have it very easy. Either that or they are trying to sneak something by the public.

But often the first order of business by the House and Senate each year is to quickly conform Virginia’s tax code to changes made to the federal version. That happens more often than one might think, via new laws, new regulations or regulatory interpretations, court rulings and the like. Since Virginia’s tax code is aligned with the federal code, changes to the latter affect the former and if not recalibrated an unintended tax increase results.

The Finance committees will have conformity on their minds again this session. Typically, members are fully briefed by Tax Department officials prior to session on what are usually technical issues and the bills to conform are more a rite of the season rather than weighty economic issues. They get tagged as emergency legislation to move quickly through both chambers and take effect immediately once signed into law so Virginians can get updated tax forms.

But changes made to the federal tax code last December by the Tax Cuts and Jobs Act, while lowering the federal tax burden for all taxpayers, inadvertently raises Virginia individual and corporate taxes. If the Virginia tax code isn’t conformed, January sticker shock won’t be confined those Christmas spending credit card bills.

Democrat Governor Ralph Northam’s administration is projecting the overrun to state coffers at $549 million in 2019 and growing to $1 billion in 2024. That’s billions of dollars of aggregate tax increases in five years alone — and comes on the heels of the commonwealth’s $2 billion of tax and grant benefits package to Amazon to build a split second headquarters in Crystal City.

The issue has been discussed at least since the summer and while there are not hardened battle lines yet, partisan trenches are in the first stages of being dug. Northam has proposed returning the state’s windfall in the form of an earned income tax credit, that provide refunds to people who pay little, if any, tax. Some of the bonus cash would also fund Medicaid bills, which the commonwealth recently under forecast to the tune of $462 million.

Conservatives are beginning to rally behind a plan by the Thomas Jefferson Institute that will compensate for the federal adjusted gross income now knocked out of sync with the Virginia formula, as well as the reduction or elimination of certain federal exemptions. Primarily, Virginians will find their standard deduction significantly smaller when claiming the new simpler and massively larger federal standard deduction. The resulting state tax increase would neutralize any federal tax savings.

The proposed remedies are to conform the two codes; increase the state standard deductions from $3,000 to $6,000 and from $6,000 to $12,000 for individuals and married couples filing jointly, respectively; reduce the corporate tax rate from 6 percent to 5.5 percent; and index all individual brackets, exemptions and deductions to the rate of inflation.

Numerous small business, individual and family taxpayer advocates, and economists, already have signed on to the TJI plan, while Republican lawmakers seem to be on board in principle. If your first Finance Committee meeting is this session, it will be quite an initiation.

Stephen J. (Steve) Rossie is a Richmond-based public and government relations’ consultant. He has been a General Assembly lobbyist since 2006 and has written about Virginia government since 2007.

 





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