Lower-income Virginians would spend more money in taxes each year under Gov. Glenn Youngkin’s tax plan, according to an analysis from a progressive fiscal organization.
Youngkin is proposing to cut personal income taxes by 12% across all tax brackets and to raise the sales-and-use tax from 4.3% to 5.2%, an increase of 21%. That would, on balance, see the bottom one-fifth of Virginians pay more in taxes each year, according to Megan Davis of The Commonwealth Institute for Fiscal Analysis.
TCI conducted the analysis with The Institute on Taxation and Economic Policy and found that people with incomes up to $30,000 would see an average tax increase of $44, and those up to $58,000 would pay an average of $5 more each year. Virginia’s wealthiest filers, those making more than $763,000 would pay $9,640 less in taxes each year, according to the joint analysis — which was conducted using ITEP’s microsimulation tax model.
Youngkin’s proposed income tax cut would reduce tax revenue by $1.1 billion in fiscal year 2025 and $2.3 billion in FY26. His budget would span July 1, 2023 through June 30, 2026.
“Two-thirds of the benefit of this $3.5 billion-almost proposal will flow towards high income tax filers in the top 20% of incomes in the state and then 20% alone will go towards the top 1%,” Davis said.
She said the money would otherwise be put into education, health care and child care.
“Their proposal also comes at a cost to Virginians,” she said.
This analysis didn’t include new sales taxes on digital goods, a large component of the Virginia economy that is currently exempt from the sales-and-use tax.
A Youngkin spokesperson said that Virginia Tax, the state’s taxation agency, estimated savings for representative households by using Virginia Tax’s microsimulation model and utilized spending patterns from U.S. Census Bureau data. The spokesperson said that under the governor’s plan, a single taxpayer with $35,000 in income and one dependent who claims the standard deduction would save $141 under the plan, while a married taxpayer earning $75,000 filing a joint return with two dependents would save $243.
In comments to reporters following Youngkin’s budget presentation, the governor said that changes to the Earned Income Tax Credit would address tax bills for lower-income Virginians. The plan would allow low-income Virginians to claim an “enhanced Virginia Earned Income Tax Credit, equal to 25% of the federal EITC on top of their 12% individual tax rate cut,” according to a press release at the time.
Currently, Virginians can claim a refundable tax credit of 15% or a nonrefundable credit of 20%.
The sales-and-use-tax changes would offset the decrease in revenues by raising an additional $720 million in FY25 and $1.8 billion in FY26 — neither fully closing the projected losses in income tax revenue.
Planners in the administration predicted that by closing what Youngkin called “the big tech tax loophole.” Virginia would take in another $714 million over those two years, according to budget planners.
Ruth Mason, director of the Virginia Center for Tax Law at the University of Virginia School of Law, said that removing the exemption generally made sense.
“Good tax policy tries to avoid drawing such distinctions because it will distort both taxpayer behavior and the market, giving competitors who deliver services over the internet an edge over those who deliver similar services electronically,” she wrote in an email.
Amazon’s PR departments and lobbyists registered with the company did not respond to requests for comment on the new proposals, nor did representatives from the Streaming Innovation Alliance.
Derrick Max, CEO of the Thomas Jefferson Institute, a conservative think tank, said he was excited about the changes.
“Incentives on sales taxes is to save, which is exactly what our country needs, what our state needs,” he said.
Max also said that this would ensure people who don’t pay income tax contribute to state coffers.
“To the extent that lower-income people that are on welfare and have transfer payments, they weren't taxed as income,” he said. “With an increase in the sales tax they, will have to pay some of that burden.”
Most tax experts agree that sales taxes are regressive. But it’s difficult to measure how much higher the share of income less-affluent Virginians pay in sales tax when compared to the wealthy, since sales taxes are collected by retailers — not the state.
A 2018 report from ITEP said Virginians making less than $22,000 a year spent 5.4% of their income on sales and excise taxes — roughly $1,200 or less.
That share could be lower today, since Virginia lowered the grocery tax in 2022, and lower-income people spend more on food as a percentage of their income, according to the U.S. Department of Agriculture. High inflation in 2023 and other changes to Virginia’s tax code have also occurred since the 2018 ITEP analysis.
