Virginia’s finances are in excellent shape, paving the way for the General Assembly to agree with Gov. Glenn Youngkin that it’s time to cut taxes in the commonwealth. It’s your money, not the government’s, and the government has collected too much of it over the last few years.
In a snapshot, Virginia’s coffers are full. The commonwealth ended fiscal year 2022 with a $3.2 billion cash surplus and is poised to end fiscal year 2023 with a $3.6 billion surplus. Our revenue reserves are set to reach nearly $4.3 billion by the end of the 2023-24 biennium, more than the constitutionally targeted 15% of revenues. These numbers show that Virginia is extraordinarily well-positioned to deliver both necessary investments in critical services and badly needed tax cuts for Virginia’s families, individuals and local businesses.
A surplus in government happens by collecting more taxes than appropriated expenses. As part of the formulation of the governor’s current budget proposal, long-serving and highly experienced budget experts prepared five-year projections of revenues and expenditures that anticipate a recession beginning this year and incorporate inflation and ongoing growth in critical education and health care programs. Plainly put, Virginians are overtaxed, and it’s time our leaders take a good look at bringing down taxes to make the commonwealth competitive with our neighbors.
Last year, the governor and General Assembly funded a record $3.1 billion in new investment for public education, including double-digit raises for schoolteachers and funding for school infrastructure across Virginia. Law enforcement agencies across the commonwealth saw $400 million in new funding for training, equipment and recruitment. Landmark commitments to economic site development were included to make the commonwealth more attractive to large-scale investments from global companies like Lego, which selected Chesterfield County for its first U.S.-based manufacturing facility.
Under prudent assumptions — which include an economic recession this year — ongoing state tax revenue is expected to exceed ongoing spending by $1.8 billion and more in future budget cycles, well beyond what is required to support the proposed tax relief package.
Overtaxed Virginians are voting with their feet and their wallets, moving to states with lower taxes and a lower cost of living. The Wall Street Journal ranked our targeted competitor states (Florida, Texas, North Carolina, South Carolina, Tennessee and Georgia) first through sixth for net population growth from domestic migration from July 2021 to July 2022. Meanwhile, Virginia ranked 42nd in the nation, losing nearly 24,000 people to domestic migration in that year alone.
Census data shows that every year for the past nine years more Virginians have moved to other states than have moved from other states into Virginia, totaling 132,000 in net domestic out-migration. Over that same time period, net domestic migration increased Florida’s population by 1.8 million. North Carolina’s population grew by 671,000.
When Virginians relocate, they take their livelihoods with them, at the expense of the commonwealth. IRS data show that, since 2013, Virginia has lost $9 billion in income due to the net loss of Virginians. The same IRS data shows that North Carolina, our closest competitor, gained $17.6 billion in income from former residents of other states.
Three of our competitor states have no income taxes and the other three have been strategically lowering tax rates and have attracted people to them.
Gov. Youngkin has proposed reducing tax rates for both individuals and businesses to enhance our competitive position and grow the economy. All taxpayers in Virginia will benefit from the $5 billion package. The proposed reduction in the top individual income tax rate will benefit 86% of Virginia taxpayers. Paired with an increase in the standard deduction to $18,000 for married taxpayers ($9,000 for singles), 47,000 Virginians will be removed from the income tax rolls. This plan also reduces taxes on a veteran’s military pension regardless of age, increasing the after-tax income of 152,000 Virginia veterans that will stay in Virginia to retire or start their second careers.
Reduction in the tax rate on businesses in Virginia from 6% to 5% will catapult Virginia to the second lowest rate among competitor states. Other proposed business tax changes, such as the Qualified Business Income deduction, will reduce the tax bill for 450,000 small business owners.
Our unprecedented financial strength allows us to reduce taxes while providing resources for additional spending priorities. The governor’s proposed budget also provides $2.6 billion for spending that complements our economic development strategy and enhances Virginia’s quality of life. This includes $450 million for additional business site development, research to drive innovation in small modular nuclear reactors, $230 million to transform our behavioral health system, retention and performance bonuses for our teachers, recruiting bonuses to encourage more men and women to enter law enforcement, resources to allow more nurses to be trained and ready to serve in our health care facilities, and $537 million to preserve the treasure that is the Chesapeake Bay.
We must reverse the trends of the past decade in Virginia to create a more prosperous commonwealth. By creating a more competitive tax code, Virginia is sending a clear message to individuals, families and companies: We are competing to win.
Virginia Secretary of Finance Stephen E. Cummings took his oath of office on Jan. 15, 2022. He oversees the state Department of Accounts; Department of Planning and Budget; Department of Taxation; and Department of the Treasury along with the Virginia Resources Authority and Virginia Board of Accountancy. He previously served as president and CEO of Mitsubishi UFJ Financial Group Inc. (MUFG) in the Americas.
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