RICHMOND, Va. (WRIC)-The biggest slice of Governor Glenn Youngkin’s new tax relief proposal would benefit corporations.
It’s already proving to be one of the most controversial elements of his two-year budget plan, which is likely to face turbulence in a politically divided General Assembly. The plan will serve as a starting point for negotiations during the 2023 legislative session, which starts in January.
A recent presentation from Virginia’s Secretary of Finance Stephen Cummings estimates reducing the corporate income tax rate would cost the state roughly $362 million over the biennium, which accounts for more than one third of the $1 billion tax relief package Youngkin presented to the General Assembly last week.
The budget Youngkin signed earlier this year has another $4 billion in tax relief.
Youngkin argues cutting the corporate tax rate from 6 percent to 5 percent is essential to compete with other states for new jobs. He called it a first step towards his ultimate goal of 4 percent by the end of his administration.
“This first step will mean our business tax rate will be lower than Tennessee, Georgia, and Florida. But more importantly, 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 their jobs and to ignite the Commonwealth’s economic engine,” Youngkin said.
According to the Tax Foundation, a tax policy nonprofit, 44 states levy a corporate income tax, with rates ranging from 2.5 percent in North Carolina to 11.5 percent in New Jersey. A state-by-state comparison shows 11 states have top rates at or below 5 percent.
Asked how Virginia stacks up, Tax Foundation Senior State Policy Analyst Timothy Vermeer said, “That is pretty middle of the road nationally. Regionally, it is less competitive.”
Vermeer said neighboring North Carolina presents one of the most obvious challenges, as the state plans to phase-out corporate income taxes by 2030.
“It is a lot easier to relocate from Roanoke to Raleigh than it is to go from Richmond to Houston,” Vermeer continued. “We’re not talking about giant swings in relocation of businesses but you’ll see movement there. It may not happen immediately but overtime that adds up.”
Ashley Kenneth, President and CEO at The Commonwealth Institute, said businesses wouldn’t be paying their fair share if Youngkin’s plan gets approved.
“It means that you, me and families across Virginia would be paying a higher tax rate than profitable corporations,” Kenneth said.
Youngkin is also proposing a reduction in Virginia’s individual income tax rate from 5.75 percent to 5.5 percent, as well as another increase in the standard deduction.
But, to cushion possible recession impacts, the individual income tax rate decrease would only become a reality if the state meets revenue expectations later in 2023. In contrast, Youngkin’s proposal does not build in the additional safeguard for lowering the corporate tax rate, according to Youngkin’s spokesperson Macaulay Porter.
Youngkin’s plan to give businesses a break also has a larger price tag than the additional money he is proposing for other major priorities. For example, the plan Youngkin laid out last week to reform the behavioral health system would cost roughly $230 million, much of which is one-time funding.
Porter said Youngkin is proposing an additional $427.7 million for K-12 education.
Kenneth said much of that total is a technical update to account for changing student enrollment numbers. She said the plan includes an additional $200 million, which is largely for one-time bonuses, lab schools and learning loss.
It comes after Virginia was ranked 41st in state support for public education in a recent analysis.
“It is important for us to remember that we are still under-funding our schools and so many resources and services that we need to help families thrive,” Kenneth said. “We don’t necessarily have a surplus when we are not even taking care of basic needs.”