RICHMOND, Va. (AP) — Virginia Republicans outlined a tax plan Friday that would lead to lower state tax bills for thousands of taxpayers but said the window to get a deal done is closing fast.
It's a deadline that's setting up a potential game of chicken with Democratic Gov. Ralph Northam that could make filing state tax returns significantly more complicated and costly if no deal is reached.
House Republican leaders released details of their plan Friday, a few days ahead of the start of the legislative session. The plan would 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. Those changes would apply to the 2019 tax year, and taxpayers who itemize their deductions could take a one-time deduction on their 2018 taxes.
“Today is an important day as we introduce a plan that does exactly what we have all promised our constituents we would do while serving them in Richmond,” said Speaker Kirk Cox (R-Colonial Heights). “We are offering a responsible plan to stop Governor Ralph Northam’s middle-class tax hike and provide targeted tax relief to middle and low income Virginians while protecting the state’s AAA bond rating.”
Changes in federal tax law are set to provide Virginia with multibillion-dollar windfall if state tax rates and deductions go unchanged. The federal tax overhaul slashed tax rates but also put new limits how businesses can account for losses and what kind of deductions individuals can take — changes projected to boost state tax revenues.
Northam wants use the extra money to increase spending in certain areas, give tax breaks to families making less than about $50,000 a year, and pad the state's reserves. Republicans said the money belongs with the taxpayers, and said their proposal would "protect" 600,000 middle-class tax filers from a "hidden tax increase."
"Our proposal keeps more money in the pockets of Virginians without costing the state one penny," said GOP Del. Tim Hugo.
But the policy debate is complicated by whether to the state tax code should match the federal tax law's new definitions of income. Traditionally, lawmakers pass the so-called "conformity" legislation every year with little fuss even though it's considered emergency legislation that needs 80 percent approval in both chambers to pass.
Northam and Virginia's accountants have said this year should be no different and urged the GOP-led General Assembly to pass conformity legislation as quickly as possible — separate from any other tax policy debate.
Emily Walker, a lobbyist for the Virginia Society Certified Public Accounts, said taxpayers and tax preparers need clarity as tax season approaches. She said if tax conformity legislation isn't passed early in the session, it will require significant more work to fill out state tax returns properly.
"If you don't find a way to do conformity, tax season is going to be very complicated, delayed and potentially expensive for taxpayers," she said.
Republicans said Friday they are well aware of the need for conformity legislation but said the issue has to be resolved at the same time as other tax issues. They urged Northam to work with them quickly in order to finalize a deal.
Northam's administration said it was open to working with Republicans to find a compromise, but said trying to use the conformity legislation issue as leverage to force their tax plan through won't work.
"That's a bad calculation on their part," said Secretary of Finance Aubrey Layne.