Virginia Gov. Glenn Youngkin is seeking tax changes that include rebates for the car tax, eliminating state taxes on tips, changes to how corporations pay taxes and making a higher standard deduction permanent.
Youngkin is also proposing additional large-dollar spending on education, law enforcement and disaster relief.
The proposal is yet another spending bill buoyed by tax collections that came in above estimates, but also because budget planners being more optimistic about how much money could come in in the future.
“My main point today is simple. Let's keep going,” Youngkin told a joint meeting of the legislature’s Democrat-controlled “money committees,” which are responsible for assessing the plan and offering a counterproposal. “There is reason to be optimistic about our economic outlook.”
Revenues through November were 7.3% — or $763 million — higher over the previous year, according to the Secretary of Finance. The new economic forecast and other transfers added $4.7 billion for Youngkin to propose incorporating into the two-year budget, which runs from July 1 to June 30, 2026.
The “signature tax policy,” as a Youngkin advisor called it in a call with reporters, is forming a $1.1 billion fund to finance three years of tax rebates for a car tax. Individual filers would need to make less than $50,000 a year — $100,000 a year for joint filers — to qualify. They could claim up to $150 or $300 depending on their filing status. The rebates would cost the state $360 million in revenue after those three years, an issue the next governor would have to incorporate into their midterm “legacy budget.”
The car tax is a major source of revenue for local governments; Richmond levies about $50 million a year in personal property taxes or about 10% of its general property taxes. People living in localities that increase their taxes by more than 2.5% a year wouldn’t be able to claim the tax rebate.
Permanent tax reductions that Youngkin is proposing include making a 2023 raise in the standard deduction permanent and eliminating state taxes on tips.
In 2023, legislators raised the standard deduction to $8,500 for individuals and $17,000 for joint filers. It was planned to be sunset in 2026. An expiring earned income tax credit is also set to expire on Jan. 1, 2026.
Youngkin’s proposal to eliminate taxes on tips mirrors campaign promises President-elect Donald Trump and Vice President Kamala Harris made on the campaign trail. It’s unclear if it applies to tips earned by self-employed contractors, such as those working through food delivery or ride sharing apps.
“My friends, there is no reason to raise taxes on Virginians. We are running surplus after surplus after surplus,” Youngkin told legislators.
Virginia finance officials have consistently planned for a recession over Youngkin’s term, but it has never come. With the economy performing above those expectations, tax revenue also rose.
The $4.7 billion figure also is going toward additional spending, with education being the highest dollar amount. Direct aid for K-12 education would get an additional $518 million and $111 million would fund programs for English language learners. The governor also put more money toward school choice with two new initiatives. $50 million would go toward a “scholarship” program that families could spend on tuition at private schools, and $25 million would go to HCBUs for new lab schools.
Another $127 million would go toward a disaster relief fund using carbon permit sales from the much-litigated Regional Greenhouse Gas Initiative and the general fund.
Richmond’s Combined Sewer System would also receive $50 million in additional funding in the amendments.
Youngkin’s amendments also include funding increases for the Virginia State Police: a new training academy and divisional headquarters, and fully funding a 1.4% pay increase for troopers.
It would also fund $5 million in grants for firefighter equipment purchases and $2.5 million for emergency communications infrastructure.
Youngkin announced last week that he was introducing a budget amendment that, if passed, would withhold funding from detention facilities that do not notify Immigration and Customs Enforcement that those with an ICE detainer are to be released in 48 hours, or any agency that “impedes communication or cooperation with U.S. Immigration and Customs Enforcement.”
Looking forward
Unlike last year, when a showdown between the Democrat-controlled General Assembly and the Republican governor raised the specter of a government shutdown, this year’s amendments are largely adjustments to spending and to utilize another batch of tax collections that beats estimates.
Democrats in the House of Delegates signaled they were receptive to the proposals while hinting they might flip the balance of taxes and spending more toward additional funds for capital investments or state services, not mentioning the governor’s tax relief proposals in their published remarks.
“As we review the Governor’s budget, our focus will remain on targeted investments that benefit all Virginians,” said Del. Luke Torian (D–Prince William), the House appropriations chair, in a statement after Youngkin’s presentation.
Last year, Youngkin asked the legislature to eliminate the car tax without including it in his budget, but the effort stalled early. Wednesday, Torian kept his cards close to his chest on the car tax.
“There’s nothing that’s a nonstarter for us, because what we will do after today … we will see what is applicable, what we can do, what we can’t do, and what we need to visit with him on,” he told reporters after the presentation.
Democrats have already started publicizing a “momnibus” bill for maternal health and childcare, while the administration and General Assembly Republicans are also putting forward proposals on maternal health. Youngkin’s amendments include another attempt to restrict Medicaid funding for abortions when there are severe fetal abnormalities.
Democrats have expressed anxiety about new federal policies from the incoming administration could affect Virginia.
“We don’t know what’s coming from the other side of the Potomac,” said Senate finance chair Louise Lucas (D–Portsmouth) in an interview Monday.
“With regards to concerns around tariffs,” Youngkin said while answering a question on Trump’s campaign promises, “I believe that President Trump is going to use tariffs to make sure that America gets good deals.”
Virginia’s legislative session begins Jan. 8.
