Youngkin proposes $1 billion in tax cuts in Virginia budget plan

Gov. Glenn Youngkin proposed $1 billion in tax cuts as part of a list of updates he wants to make to the state’s two-year budget, which includes amendments to reduce Virginia’s corporate tax rate and individual income tax rate.

The proposed tax cuts come on top of $4 billion in tax relief included in the biennial state budget approved by the General Assembly and signed by Youngkin earlier this year. The governor touted his budget amendments to cut taxes as a way to compete with other states, such as Tennessee, Georgia, Florida and North Carolina, when it comes to business and personal income tax rates.

“Like business taxes, we must realize that people take into consideration what they pay in taxes when they decide where to live,” Youngkin said Thursday, listing several states with lower personal income tax rates than Virginia. “We must start walking down that same path – that same path to lower rates.”

“By setting ourselves on a committed path to an even lower rate, like Democrat-led North Carolina was able to do, we will send a clear signal to businesses that we want your jobs, and we are going to drive the Commonwealth economic engine even faster,” the governor added.

Youngkin’s proposal seeks to increase the standard income tax dedication to $9,000 for individuals and $18,000 for joint filers – fulfilling a campaign promise the governor made to double those amounts. The governor’s proposal also seeks to reduce the top personal income tax from 5.75% to 5.5%, which Youngkin estimates will save Virginians $700 million per year.

Youngkin also wants to decrease the corporate income tax rate from 6% to 5% – a move estimated to cost the state about $362 million in the current budget. The governor touted this a “first step toward an ultimate goal of 4% by the end of our administration.” The governor noted if his proposal is approved, Virginia’s business tax rate will be lower than Tennessee, Georgia and Florida.

For small businesses, the governor’s proposed amendments would create a 10% deduction on business income, which is estimated to cost the state about $162 million.

Certain aspects of the tax plan – particularly, the reduction in the top individual income tax rate – are contingent on the state’s revenue position in the coming months. Youngkin acknowledged that several economic experts expect Virginia to “follow the national economy into a recession next year, and that recession will last at least six months.” If 2023 revenues come in below forecast, certain spending and tax reductions will be cut back.

In addition to the tax cuts, the governor’s budget amendments include $230 million for the state’s behavioral health system. The governor previewed this aspect of his amendments during an event in Richmond Wednesday, where he also unveiled his multi-year plan to reshape the state’s strained behavioral health system.

Youngkin also wants to see a package of $175 million included in the updated budget to pay bonuses to what he calls “quiet heroes” – teachers, nurses and law enforcement officers. For teachers in particular, Youngkin proposed 1% retention bonuses to be paid out in August and a $50 million program to reward $5,000 to teachers “based on merit.”

The governor’s amendments will be weighed by members of the House and Senate Money Committees when the Legislature convenes for its next session in mid-January.

The budget amendments were received with optimism by several Republican leaders in the House of Delegates Thursday.

"Governor Youngkin’s proposals will make Virginia more competitive on the national and international stage, and it will put more money back into the pockets of hardworking Virginia families who are struggling to deal with near record inflation,” House Majority Leader Terry Kilgore, R- Gate City, said in a statement.

Meanwhile, some aspects of the governor’s Thursday presentation received criticism from Democratic lawmakers.

“Youngkin speaking about the importance of teachers is the definition of irony,” Del. Eileen Filler-Corn, D-Fairfax, tweeted in reference to the governor’s past comments on K-12 education and his tip line for parents to report “divisive” practices in school. “It’s as if he hasn’t heard his own rhetoric for two years going back to his campaign.”