On Taxes, Youngkin Should Pluck the Low-Hanging Fruit

O ne of the pitfalls to avoid in politics is mandate creep. When a winning campaign and its supporters overinterpret their victory and overreach as a result, attempting to enact every item on their ideological wish list, the voters tend to punish them. This phenomenon is playing itself out as we speak in the halls of the U.S. Congress, as Democrats try to impose a massive New Deal-style agenda onto an unwilling country with thin legislative majorities.

Republicans in Virginia will now no doubt be tempted to make the same mistake, but they should avoid it. Governor-elect Glenn Youngkin mostly ran on education issues and promises to return the state to normalcy. His tax agenda was a hodgepodge: exempting groceries from the sales tax; delaying a gas-tax hike for a year; offering a one-time rebate of $300 per taxpayer and spouse; requiring voter approval for property-tax hikes; doubling the standard deduction to $9000 per taxpayer and spouse; cutting taxes for veterans; enacting a small-business “tax holiday” (the details on this aren’t clear); and exempting businesses from any taxation on Paycheck Protection Program loan forgiveness.

While these policies would do ordinary Virginians a fair amount of good, Youngkin was correct not to promise the moon on tax reform. After all, the state Senate will be controlled by Democrats for at least his first two years in office, Republicans now hold just a one-seat margin in the state House, and Virginia is still more blue than purple.

The good news for Youngkin is that even with a narrow GOP House majority and a 21-19 Democratic Senate, he should have opportunities to enact common-sense tax reforms beyond those in his relatively modest campaign platform. And at the top of the list should be a long-overdue move to a flat personal income tax, something Virginia very nearly already has.

Virginia’s tax brackets are not indexed to inflation, unlike federal income-tax brackets. This isn’t a big deal, though, since the state’s top tax bracket kicks in at just $17,000 of taxable income. Believe it or not, there are four brackets underneath that one, ranging from 2 percent to the top rate of 5.75 percent. Meanwhile, Virginia is bordered by two states with higher marginal income-tax rates (Maryland, West Virginia), D.C., which also has a higher rate, and three states with lower rates (Tennessee, which has no income tax, Kentucky, and North Carolina).

Kentucky and North Carolina have or soon will have tax systems with a top rate of 5 percent. Virginia can and should match that. All the state has to do is collapse the existing four brackets with a top rate of 5.75 percent into one single bracket with a rate of 5 percent. This would pair very well with Youngkin’s campaign proposal to double the “zero bracket” standard deduction (since the flat tax involves not only lowering the top bracket from 5.75 percent to 5 percent, but also raising the 2 percent and 3 percent brackets up to 5 percent).

What would result is a flat tax with a rate as low or lower than is paid in every one of Virginia’s neighbors except income tax-free Tennessee. Needless to say, this would do much more for taxpayers than the one-time rebate Youngkin ran on.

There’s another low-cost, high-impact tax change Youngkin should push for, and it’s one other states have already made. State unemployment trust funds were depleted in 2020 and 2021. As a result, state unemployment-tax rates are set to automatically rise in order to replenish the funds. Many states have decided to use federal COVID-relief dollars to refill the funds’ coffers instead, which means unemployment taxes won’t rise on employers. Virginia, whose unemployment trust fund is at only 12 percent of the recommended solvency level, should do the same. It’s a policy both Republicans and Democrats ought to be able to get behind.

On the education front, Virginia has a scholarship-tax-credit program that already does well. Under the program, businesses and individuals can contribute to a qualified scholarship fund (the Catholic dioceses of Arlington and Richmond each run one, for example). The average scholarship amount granted is about $3,100 per student per school year, the same as the state share of per-pupil public-school funding. These scholarship-fund dollars can only go to low-income students to help offset the cost of private-school tuition.

Youngkin should work to expand the program. Currently, taxpayers who donate to a scholarship fund get a 65 percent credit on their state income taxes. Youngkin should work with Republicans and Democrats in the legislature to raise this tax credit to 100 percent, and remove other funding caps on the program. That would mean more money for kids to escape failing government schools, and it would let business and individual taxpayers direct all of their state income taxes to these scholarships.

The bottom line is that when it comes to tax reform, Youngkin has a lot of low-hanging fruit to pick. He doesn’t need to swing for the fences without the mandate or legislative majority necessary to hit a home run, and he shouldn’t try. He should focus on the singles and doubles he promised to hit during the campaign, and pursue those sound policies beyond his platform that have a good chance of attracting the bipartisan support needed to pass. Doing so would make Virginia’s tax system more competitive for job creators, friendly to families, and helpful to those trying to escape poverty and failing government schools.