Virginia is set to return more than $1 billion to certain taxpayers through an existing state tax benefit for small businesses, representing about two-thirds of Governor Glenn Youngkin’s reported $1.5 billion windfall for the recently concluded fiscal year.
The Secretary of Finance, Steve Cummings, confirmed that the state anticipates refunding “something more than a billion” dollars to taxpayers who took advantage of a new tax benefit for pass-through entities, allowing them to avoid a $10,000 cap on federal income tax deductions for state and local taxes.
Even after the refunds, the state will still have around $500 million in addition to the $3.6 billion in excess revenues used for Youngkin’s proposed package of tax cuts and spending priorities in the December two-year budget.
Senate budget negotiators are reviewing a new House proposal to bridge a $1 billion gap between House Republicans and Senate Democrats over the governor’s package of corporate and individual income tax cuts.Senate Finance Co-Chair George Barker considers this progress and plans to brief other Senate budget negotiators in person when possible.
Navigating Uncertain Revenues and Tax Cuts
The budget negotiations are not expected to include excess revenues from the last fiscal year due to uncertainty about the amount to be returned under the “pass-through entity tax” implemented last year.
Many small business owners prepaid their taxes in the previous fiscal year and are now expecting a state income tax refund this fall, within the new fiscal year starting on July 1. As a result, the state will have to return a substantial portion of the additional revenues reported by the governor for the last fiscal year.
However, these revenues won’t impact ongoing budget discussions.House Appropriations Chairman Barry Knight expects negotiators to rely only on the $3.6 billion in revenues from Governor Youngkin’s December budget proposal.
Knight recently presented a new proposal to bridge the gap between House Republicans and Senate Democrats. While he didn’t disclose the details, his previous suggestion included a combination of ongoing and one-time tax cuts totaling about $900 million, in addition to the $4 billion in cuts approved by the General Assembly after a budget standoff over a year ago.
Governor Youngkin remains committed to reducing corporate and individual income tax rates, believing that Virginia’s high cost of living and doing business relative to other states hinders growth.
Source: The Franklin News Post