By Graham Moomaw
& Sarah Vogelsong
VM – Right before the 2023 General Assembly session began, a Virginia Commonwealth University poll found inflation was still a top issue Virginians want their elected officials to address.
Because statehouses don’t have much control over national monetary policy, state legislators have spent much of the last six weeks debating what they can do to ease financial hardship for struggling Virginians. Heading into a high-stakes General Assembly election year, Democrats and Republicans have dueling philosophies on how to achieve that.
Gov. Glenn Youngkin — who argues high costs of living are a key driver of migration trends showing more people leaving Virginia than coming — has continued to push for broad tax cuts for individuals and businesses, with Republican lawmakers mostly behind him.
“The writing on the wall couldn’t be more simple: The people of Virginia are overtaxed,” Youngkin said in his State of the Commonwealth speech as the session began. “It’s their money, not the government’s, and they are voting with their feet and their wallets.”
The GOP’s approach “hasn’t changed any” from last year, when the politically divided General Assembly approved $4 billion in tax relief, said House Appropriations Chairman Barry Knight, R-Virginia Beach.
“We wanted to give money back to people,” Knight said. “We wanted to lessen the tax burden on people. And we wanted to make it easier to get a higher-paying job in Virginia.”
Democrats have resisted several aspects of this year’s tax-cutting push, particularly Youngkin’s call to cut the corporate tax rate from 6% to 5%, and have argued the state should use its still-strong revenues for more targeted relief efforts and bigger budgets for core public services, particularly K-12 schools.
None of the roughly $1 billion in tax cuts Youngkin included in his budget proposal were included in the budget plan approved by the Democratic-controlled state Senate, setting up another negotiating standoff casting uncertainty over the entire process. The legislature is supposed to adjourn Saturday, but if there’s no budget deal, the state could be in line for a special session to allow talks to continue. Some lawmakers have pointed out they technically don’t have to pass a new budget plan this year, since they’re only making amendments in the second year of a two-year budget cycle.
House Minority Leader Don Scott, D-Portsmouth, said Youngkin and the GOP are making a “risky bet” that cutting corporate taxes will lead to economic growth down the line.
“He could’ve made a bet on our kids and our future and education,” Scott said. “But he chose to make a bet on old, tired trickle-down economics.”
Republican lawmakers say their tax legislation could add up to hundreds of dollars for the typical Virginia family.
“It’s very real money when people are really struggling. It’s significant,” Del. Joe McNamara, R-Roanoke, said as he presented a bill that would have lowered the state’s top individual income tax rate from 5.75% to 5.5% and raised the standard deduction from $8,000 to $9,000 for individual filers and $16,000 to $18,000 for joint filers. That legislation passed the GOP-controlled House of Delegates but failed in the Senate.
The state’s highest income tax bracket starts at $17,000 in taxable income, and some Democrats have said the state needs to take a harder look at the fairness of its tax code before making any more major changes.
In response to McNamara’s proposal, Del. Vivian Watts, D-Fairfax, said talking about “typical” taxpayers doesn’t get at the fact that “we are talking about a lot of different people at a lot of different income levels.”
“It has been literally decades since we have had changes to Virginia’s income tax. And we need to have them,” Watts said at a committee hearing on Republican tax bills. “But during those decades, the rich have gotten richer. And the poor have gotten poorer.”
Watts said she was more supportive of raising the standard deduction because it helps a broader segment of taxpayers. But cutting the top rate, she said, “is one of the most regressive changes we could make” because it disproportionately helps high-income earners.
McNamara said the GOP’s expansive tax-cutting vision is part of creating a low-cost environment that will bring more businesses to the state and, by extension, more jobs for people who might otherwise leave for opportunities elsewhere.
“Of course we have needs,” McNamara said. “But at some point, government is crowding out private investment.”
Republicans and Youngkin have argued one high cost dampening Virginia’s growth is energy prices, which they say have been unnecessarily inflated by Democratic laws ordering the state’s utilities to begin transitioning to renewables. Many Democrats, however, say the high energy bills Virginians face are due to the state’s laws governing utility regulation rather than efforts to decrease carbon emissions.
The parties have passed one reform measure this session that explicitly gives state regulators the power to set future electric rates as they see fit, a bipartisan proposal pitched as a way to keep the utilities from overearning. Other legislation backed by Dominion Energy would make a series of changes to utility laws that the company says would lower customer bills, although some ratepayer groups remain skeptical and negotiations still continue.
“The question is how much will that bill do,” said Sen. Jennifer McClellan, D-Richmond, at a January press conference on Senate Democrats’ “commitment to lower costs for Virginians.”
In contrast to the Republicans’ focus on tax cuts, Democrats this session proposed a range of spending measures aimed at providing targeted relief to cash-strapped families, from a child tax credit to new mechanisms that could put upper limits on rent and prescription drug price increases.
At the January press conference, Senate Democrats touted three proposals: a state child tax credit, the creation of a Prescription Drug Affordability Board and directives for the state to conduct a statewide housing needs assessment and housing plan.
“I believe in capitalism. I have no problem with people making money, especially me,” said Sen. Chap Petersen, D-Fairfax. “But at the end of the day, we’ve got to protect our people, we’ve got to protect our consumers and we’ve got to protect our taxpayers.”
But in a divided legislature with sharply divergent views on how to help Virginians, those bills have had varied success.
Following bipartisan support in the Senate, the Prescription Drug Affordability Board was halted by a Republican-controlled House committee. The board — a concept adopted in six other states including Maryland but opposed by the Youngkin administration — would have had the power to review and in some cases set upper price limits on certain prescription drugs whose cost had risen sharply.
“We are also very concerned about the cost of prescription drugs,” said Chair Kathy Byron, R-Bedford. “We may not necessarily agree about the way to get at it in this short session.”
The state child tax credit would have offered a $500 refundable tax credit for families making less than $100,000 per year. Backers said the proposal would help fill the gap left by the expiration of federal COVID-19 policies that expanded the federal child tax credit and, according to researchers, decreased child poverty nationwide. Today, 12 states have their own versions of the credit, according to the National Conference of State Legislatures.
“Parents should not just be a talking point,” said McClellan, the patron of the Senate version of the bill, this January. “We should be investing in our families and our children, and rather than putting money in the hands of big corporations and the wealthy, we need to put it back in the pockets of Virginians who need it most.”
McClellan ultimately downgraded her proposal to a study of the concept by Virginia’s Joint Subcommittee on Tax Policy.
“It is very expensive and I’m a pragmatist,” she said.
While the legislature agreed to send a letter to the panel asking it to study the proposal, a House version of the original bill died on a party-line vote in a Republican-controlled committee, with Del. Bobby Orrock, R-Spotsylvania, saying a state credit could lead to people “double dipping because they’re getting a credit at two different levels of government.”
Housing proposals also showed mixed success. Both Republicans and Democrats unanimously backed bills to craft a statewide housing needs assessment and housing plan, a recommendation of the state’s legislative watchdog agency in a report on Virginia’s affordable housing shortage.
But Republicans and Senate Democrats were less enthusiastic about legislation that would have allowed but not required local governments to develop rent stabilization programs to prevent larger landlords from increasing rent annually by an amount greater than the rise in the consumer price index. (Because Virginia is a Dillon Rule state, local governments are prohibited from exercising any authority not explicitly granted them by the state.)
The bill would have exempted new construction, as well as smaller landlords and other facilities like assisted living homes, from any limits.
“Today in Virginia, there is no limit on the rent increase imposed by a landlord,” said Del. Nadarius Clark, D-Portsmouth, who carried the House version of the bill this January. “Setting a reasonable limit on the amount a tenant’s rent can increase year over year would directly address this issue of rising rent in the commonwealth.”
Virginia rents rose about 10% on average over the past year, with some localities like Richmond seeing jumps as high as 22% over the past two years. Loudoun County and the city of Alexandria, both of which have struggled with rising housing prices, supported the proposal, said Senate patron Jennifer Boysko, D-Fairfax.
“We are confident that this is a great step in stabilizing the year-over-year rent increases that not only Loudoun is seeing but the commonwealth in totality,” said Loudoun legislative liaison Jonathan Freeman during a January hearing on Boysko’s bill.
Some Democrats seemed wary: Sen. Adam Ebbin, D-Alexandria, said he was “sympathetic” but worried limiting rent increases could prevent owners from conducting necessary renovations and maintenance.
“I’m wondering if it’s perhaps something that should be studied in the [Virginia] Housing Commission in a little bit more detail and time,” he said.
The Senate General Laws Committee ultimately agreed to send the proposal to the commission for further study.
Republicans opposed the legislation in both chambers.
“I think an owner should have the ability to say what their property is worth, consider how much they paid for it and set a rent that would be mutually beneficial to both the tenant and the owner,” said Del. Phillip Scott, R-Fredericksburg, at a Jan. 20 hearing. “With COVID and the housing shortage, housing costs have gone up, and if I were to buy a house today, I would be paying a heck of a lot more than I would have paid four years ago, and the rent should be reflective of that.”
Sen. Richard Stuart, R-Westmoreland, flatly called rent control “one of the worst ideas you could introduce into the state of Virginia.”
“I hope we don’t even study it,” he said. “The worst way to improve living conditions is to introduce rent controls because these buildings are going to fall into slums.”
