Virginia’s budget surplus—the money left over after all the programs are funded and all the bills are paid—is now projected to total as much as $2 billion, which is four times what was originally estimated. This unexpected windfall is largely due to what former Finance Secretary Aubrey Layne said was a surge of corporate and individual income tax receipts in June.
Distracted by 15 months of COVID-19 lockdowns, school shutdowns and other major economic disruptions caused by the pandemic, few Virginians noticed that in 2020, the General Assembly passed 16 new tax increases to pay for lawmakers’ new spending.
The size of the tax increases were breathtaking: a 36 percent increase in corporate income taxes, and an even more shocking 59 percent increase in individual income taxes for taxpayers who do not have their taxes withheld by their employer. This category includes a lot of self-employed small business owners.
It’s perhaps just a coincidence that the 2020 tax increases also turned out to be about $2 billion, approximately the same amount as the budget surplus. Nevertheless, as House Minority Leader Todd Gilbert, R-Woodstock, said at the time, “It’s difficult to justify nearly $2 billion in new and increased taxes at a time when state revenues are running at record levels.”
The current $2 billion state surplus shows that Gilbert was right. The $2 billion in new taxes was not justified. The only fair thing to do now is to return a huge chunk of the surplus money to the taxpayers.
The state constitution requires that a certain percentage of surplus funds be deposited in the “Rainy Day Fund” and the Water Quality Improvement Fund, both of which have been underfunded in the past. But with an infusion of $2 billion, total state reserves could balloon to $3 billion. And there’s another $1 billion surplus in the discontinued PrePaid529 college tuition program that lawmakers are itching to spend.
Money is fungible, so using the surplus to fund the Rainy Day and Water Quality funds frees up money in the state budget that would ordinarily be allocated to them. The Thomas Jefferson Institute for Public Policy calculated that the 2020 tax increases cost the average Virginia taxpayer $500 a year. That’s $500 that shouldn’t have been collected in the first place.
Will Gov. Ralph Northam suggest tax refunds for Virginia taxpayers on August 18 when he meets with the General Assembly’s money committees, especially since businesses in the commonwealth are currently facing a fourfold increase in payroll taxes next year?
Will members of the General Assembly agree to return any excess tax money to the people? Or will they come up with a laundry list of new things to spend it on?
Virginia’s long-neglected transportation system is chronically short of money. The $2 billion surplus—or at least a good part of it—would go a long way to fixing some of the worst traffic hotspots. That, and returning some of the $2 billion to taxpayers, should be elected officials’ top two priorities.