Northam proposes $250 rebates for taxpayers, eliminating grocery tax after Va. reports record financial reserves

Virginia

RICHMOND, Va. (WAVY/WRIC) — Gov. Ralph Northam is proposing $250 tax rebates for all individual tax filers in Virginia and eliminating the commonwealth’s grocery tax after Virginia reported a record surplus in 2021 and unprecedented financial reserves of nearly $4 billion.

Individual filers would receive a one-time rebate of $250 and married couples would receive a $500 rebate. Northam says he wanted all Virginians to benefit from Virginia’s strong economic growth, which led to a record surplus of $2.6 billion this year, but emphasized that lower and middle-income workers will see the greatest benefit with the rebate and the end of the 1.5% grocery tax.

The proposals are main components of a broader tax relief package being included in Northam’s outgoing two-year budget.

“When Virginia cuts taxes next year, it should be done in a way that benefits working people,” Northam said in a press release. “Many professionals made it through the pandemic fine, as their work simply moved online. But workers haven’t been so lucky when their jobs require close contact with other people. Some jobs simply can’t move online—restaurant workers, early childhood educators, home care attendants, and others—and we all depend on the people who do this work. Virginia can help working people by eliminating the state grocery tax, providing one-time rebates, and giving a tax break to people who are working.”

The proposal wouldn’t impact an additional 1% grocery tax that serves as a key revenue source for many localities, according to Northam.

The governor had called for the grocery tax to be ended when he campaigned in 2017 and Republican Governor-elect Glenn Youngkin also made ending the tax a top priority.

Despite polling suggesting the idea was popular among Virginia voters during the election, Democratic nominee and former Gov. Terry McAuliffe didn’t embrace it during his campaign.

“I’ve always said I would love to eliminate the grocery tax but every Virginia resident should understand that $600 million is immediately taken out of education,” McAuliffe said during a roundtable with WAVY-TV. “I’m not taking $600 million out of education.”

Asked if McAuliffe’s statement was wrong, Northam said, “We are far making up for whatever we are eliminating through the grocery tax so the school systems won’t be hurt, they won’t be gutted.”

Northam’s budget proposal, which will need to win approval in the General Assembly, notably includes a 10 percent pay raise for educators.

Other tax cuts announced on Tuesday include making up to 15% of the federal earned income tax credit (which helps eligible low- and middle-income workers) refundable and ending the “accelerated sales tax” for retailers. That tax was started after the 2008 financial crisis and required retailers to pre-pay sales tax.

Northam said the commonwealth’s record financial reserves, which he says will be more than $3.8 billion when he leaves office, allow for the one-time rebate and ongoing tax cuts. He says the moves will reduce state revenues by a total of $2.1 billion, with $419 million in ongoing cuts.

The $3.8 billion estimated figure in reserve is nearly 17% of state revenues, which state officials have attributed to better than expected revenue growth, federal pandemic assistance and cautious spending during the pandemic.

“The Commonwealth has a great deal of funds. It had a good year plus all of the stimulus. It’s going to be hard for a Republican or a Democrat not to share some of that with taxpayers,” said Aubrey Layne, Northam’s former finance secretary, after being named to Youngkin’s transition committee in November.

Northam’s critics have pointed out that Youngkin, who takes office on Jan. 15, had also proposed similar rebates and the elimination of the grocery tax. He’s also called for suspending Virginia’s recent gas tax increase for 12 months, doubling the standard deduction and exempting a portion of veterans’ retirement pay from taxation. 

Youngkin’s transition team shared this statement in response on Tuesday: “Governor-elect Youngkin campaigned on reducing the cost of living, fully funding our law enforcement personnel, raising teacher pay, increasing HBCU funding, expanding broadband access, and eliminating the grocery tax for all Virginians as part of his Day One game plan, Virginians throughout the Commonwealth overwhelmingly embraced those ideals. Governor Northam’s budget proposal is a step in the right direction but does not entirely fulfill Virginians’ mandate. We appreciate the Northam administration laying the foundation for these elements of the Day One game plan so that Governor-Elect Youngkin can hit the ground running on January 15th to begin executing on his key campaign promises and finish the job.”

Northam made the announcement in Richmond during his “Thank You, Virginia” tour, during which he’s called for a 10% raise for public school teachers, millions of dollars for historically Black colleges and universities and more in his proposed 2022 budget.

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