Lawmakers still far apart on tax policy as urgency increases

Published: Feb. 1, 2019 at 2:54 PM EST
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Virginia lawmakers signaled Friday they remain far apart on a tax policy, meaning some taxpayers' refunds will be delayed and every taxpayer is at risk of having to do a lot more work to fill out their state returns.

Lawmakers are split on what to do with a potential multibillion-dollar windfall in state revenues due to recent changes in federal tax law. Republicans want to return the money to taxpayers, but disagree among themselves about how to do so. Democrats want to keep the money and spend it in areas they say the state has long neglected while also helping low-income families.

The various parties have shown little sign of reaching a compromise necessary to receive broad support, even as the state's tax office started accepting returns on Monday. Those returns aren't being processed as tax officials wait to see what action lawmakers will take.

"We're passed the point in which decisions really needed to have been made," said Emily Walker, a lobbyist for the Virginia Society of Certified Public Accountants.

Senate Democrats rejected legislation Friday that would have quickly conformed Virginia's tax code to recent changes in federal tax law but also included Republican-backed tax credits and other changes designed to lower tax bills. House Democrats also indicated they won't support similar so-called "conformity" legislation when it comes up for a vote Monday because of a Republican add-on to the bill.

Debate in both chambers was lengthy and sometimes heated, with no signs of any compromise and several lawmakers giving floor speeches that looked like they would later be used in campaign ads.

Traditionally, lawmakers pass the conformity legislation every year with little fuss even though it's considered emergency legislation that needs 80 percent approval in both chambers to pass.

But that's looking less and less likely to happen in a near evenly split General Assembly in a fiercely contested election year with billions of dollars at stake.

The 2017 federal tax overhaul slashed tax rates but also put new limits on how businesses can account for losses and what kind of deductions individuals can take — changes projected to bring huge amounts of revenues if state tax rates and deductions go unchanged.

Northam wants to use the extra money to increase spending in certain areas like school construction and the environment, extend tax credits to families making less than about $50,000 a year, and pad the state's reserves.

House Republicans want to allow taxpayers to itemize their state taxes even if they take the federal standard deduction — which is currently not allowed — while also increasing the amount of the state's standard deduction.

Senate Republicans favor a bigger increase in the state's standard deduction, but oppose allowing taxpayers to take deductions on their state taxes if they don't take them on their federal.

"Our plan is simple, direct, and for the many, not the few," said Senate Majority Leader Tommy Norment, who has been highly critics of the House Republican plan.

If lawmakers are unable to find an agreement and pass conformity legislation this year, taxpayers will essentially have to calculate their federal taxes twice to determine their adjusted gross income in order to be able to fill out their state tax returns.

Secretary of Finance Aubrey Layne said the governor's office is continuing to talk with key Republicans about their plans.

"It's hard for me to believe that we won't eventually get conformity," he said.