Northam proposes to end grocery tax, cut income tax, give rebates

(The Center Square) – Before departing from the governor’s office in mid-January, Virginia Gov. Ralph Northam plans to include tax relief for businesses and low-income residents in his two-year budget proposal, he announced Tuesday.

Northam is proposing four changes to the commonwealth’s tax policy – ending the grocery tax, cutting income taxes for low-income families, offering one-time tax rebates to every Virginian with state surplus money and ending the accelerated sales tax on payments for retailers.

“When Virginia cuts taxes next year, it should be done in a way that benefits working people,” Northam said in a statement.

“Many professionals made it through the pandemic fine, as their work simply moved online,” Northam said. “But workers haven’t been so lucky when their jobs require close contact with other people. Some jobs simply can’t move online—restaurant workers, early childhood educators, home care attendants, and others—and we all depend on the people who do this work. Virginia can help working people by eliminating the state grocery tax, providing one-time rebates, and giving a tax break to people who are working.”

Currently, Virginia has a 1.5% tax on groceries. Most states do not tax groceries and according to the governor’s office, the tax is regressive, which means it disproportionately hurts low-income households. The governor has supported getting rid of the grocery tax and said the state’s current economic strength now makes that possible.

The governor intends to make 15% of the federal earned income tax credit refundable for low- and middle-income families. This would allow eligible families to get a refund from the state if they are earning money below a certain level. The refund amount would depend on income level, marital status and family size.

Economic growth rebates would return some of the state’s surplus money back to the taxpayers by giving them money back on their taxes. The one-time rebate would be $250 for individuals and $500 for married couples. The state offered smaller tax rebates in 2019: $110 for individuals and $220 for married couples.

The accelerated sales tax for retailers requires retailers to pre-pay sales taxes before they collect all of the revenue. Ending this policy, according to the governor’s office, would prevent retail businesses from dipping into their own pockets to pay the sales tax, which has placed a burden on retailers since it was enacted more than a decade ago.

Some of the tax proposals reflect the priorities of Governor-elect Glenn Youngkin who will take over the job when Northam leaves in January. The governor-elect has said he intends to end the grocery tax, return surplus money to taxpayers and reduce tax burdens on families and businesses. However, Northam’s plan does not raise the standard deduction, which is a Youngkin proposal that would provide broader tax cuts.

Although Northam will propose the budget, the final budget will need to pass the new General Assembly and be signed by Youngkin. Republicans gained a narrow control of the House of Delegates during November’s elections and Democrats will retain a tight control of the Senate. There were no Senate elections this year.

Speaker-designee Todd Gilbert, R-Shenandoah, released a statement in support of cutting taxes and suggested that Northam’s proposals are a switch from his usual agenda.

“Now we know what it takes to get Virginia Democrats to propose cutting taxes — losing to a Republican,” Gilbert said.

Stephen Haner, a senior fellow for state and local tax policy at the free-market Thomas Jefferson Institute, told The Center Square that the surplus was partially caused by leadership raising taxes in the first place. He said the state needs to lower taxes, but said Northam’s proposal is still inadequate.

“Whether to cut taxes is no longer being debated. Now the question is how to cut taxes,” Haner said. “This proposal is inadequate, far too front loaded and narrow. We still strongly prefer the proposal by Governor-elect Youngkin to reduce the income tax by giving all taxpayers a higher standard deduction. The Earned Income Tax Credit is not a bad idea, but is far less comprehensive and far more bureaucratic than simply boosting the standard deduction. EITC first takes the money and then gives it back, which isn’t smart.”

In the past week and a half, Northam has proposed several other policy initiatives for the budget, which includes greater education funding and pay raises for teachers and police officers.

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