| 1/30/2025 -- In the past few years, under governors of both parties, Virginia has expanded its standard deduction for income taxpayers from $6,000 for a couple in 2018 to $17,000 today saving those taxpayers $633. When they produce their budget bill on Sunday, the Democrats who hold the majority in the Virginia Senate may try to take back that $633. This would be a major tax hike on millions of Virginians.
The Senate Finance and Appropriations Committee on Tuesday deferred action on three Republican bills that would have made that $17,000 standard deduction permanent. It is scheduled to expire at the end of 2025 and all it takes for the General Assembly to capture about $1 billion in new revenue is to do nothing.
Nothing is what the Senate Democrats did when those Republican-sponsored bills were considered. They were "passed by for the day." To pass them now "significantly hamstrings our ability to construct a budget," said Senator Creigh Deeds, D-Charlottesville. "We need to look at our entire tax structure," added Senator Mamie Locke, D-Hampton. "Those who earn more should pay more," she added.
Thus, a target was clearly placed on the standard deduction, which could retreat from $17,000 this year to only $6,000 next year for that taxpaying couple if no extension is approved. Another $11,000 of income would be hit with tax and that would cost the taxpayers $632.50, enough to reduce take home pay on paychecks. An undetermined number of low-income people who now pay no tax would start to do so again.
Over in the House of Delegates, the exact opposite move is underway. A bill sponsored by a senior Democrat would not only maintain that higher standard deduction, but would increase it another $1,500 per couple to $18,500, saving another $86. The House bill has passed one committee unanimously but will also get tangled up in the House's version of the state budget released Sunday.
The House bill has another feature that has long been advocated by the Thomas Jefferson Institute for Public Policy. Beginning in 2026, the state standard deduction would begin to increase automatically with inflation, just like what happens with federal deductions and tax brackets and is done in 20 of the 31 states which offer a standard deduction. House Bill 1754 is sponsored by Delegate Vivian Watts, D-Fairfax.
Virginia began to increase its standard deduction on the income tax soon after a 2017 federal tax bill greatly expanded the amount of tax-free income under federal law. At the federal level the standard deduction will be $30,000 for 2025. So there could be $24,000 in income not taxed at the federal level but fully taxed by Virginia. Under the House bill, that gap would be only $11,500.
Virginia law says if you claim the standard deduction at the federal level, you must take it at the state level. About 85% of filed individual returns claim the standard deduction. It is a very egalitarian tax break, with the same value on a return reporting $50,000 income as one reporting $500,000. Taking it away would hit the middle- and lower-income workers the hardest.
It is possible the senators maneuvering to slash the standard deduction and spark an income tax increase are just playing what is often called "budget poker." The two legislative bodies often intentionally create issues that must go to negotiation, creating bargaining chips if you will. It is also possible their budget will spend every dollar grabbed by the change, making it harder to retreat and save the standard deduction. And because it is a tax increase by default, they can claim they never "voted" to increase taxes. The details will emerge on Sunday.
The chairwoman of the committee promised a Senate version of tax relief, but in recent years that has been one-time rebates from surplus funds. A one-time rebate cannot replace a standard deduction which is built into the law, applies year after year after year, and allows taxpayers to plan their finances. The Democrats who control the Assembly on both sides are likely to have plenty of cash to spend in creating their budgets. The Senate also killed Governor Glenn Youngkin's plan to offer rebates to low- and middle-income Virginians paying a local car tax.
Killing that proposal, which was also assumed in the budget, freed up more than $1 billion for spending on other things. Killing Youngkin's proposal to create a deduction for tips added more unencumbered cash for Democrats to spend.
Both Youngkin and his predecessor, Democrat Ralph Northam, have signed the series of bills increasing the joint return standard deduction from $6,000 to $17,000 in five years, and a member of Youngkin's staff indicated his openness to Watts' bill increasing it to $18,500. The senators must be playing games. To abandon all that bipartisan progress is unthinkable. | 
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