Conservative budgeting and increased wages led Virginia into a rare multi-billion-dollar budget surplus heading into the 2025 legislative session. And while Democrats in Richmond want to put much of that into K-12 education funding, leadership in both chambers are open to some kind of tax relief.
“Tax break… for hard working families? I’m feeling really good about that one,” Virginia Senate President pro tempore Louise Lucas told Radio IQ Monday.
She didn’t divulge much else about a possible rebate heading to Virginians following 2025 budget amendments, but it’s the first signal she’s open to the idea after House Speaker Don Scott said something similar last month.
“We have a billion-dollar surplus, and I think there’s some ways to use those resources and I think there’s a way to do a tax cut for every day, hardworking families,” Scott told Radio IQ after November’s election.
Virginia’s over $2 billion surplus comes after economic fears lead to less spending in 2024 and increased hourly wages and a robust workforce saw state coffers collect more revenue than expected.
Arguably about a third of that money, $633 million, has to go to Medicaid spending thanks to some dried-up federal dollars, but Senator Creigh Deeds, who chairs the Senate's Commerce and Labor committee, said a tax break for citizens could be possible.
“Some Kind of rebate, that certainly has to be on the table,” he said, acknowledging the likely demand from Republican Governor Glenn Youngkin. “Politics is about compromise.”
But Deeds also stressed the need to make up for long-delayed increases to education spending, and a long-term tax cut -something Youngkin hinted on social media following Scott’s remarks- is less likely.
“We could respond with some kind of one-time tax cut, or bonuses for state employees, or an extra investment in the state retirement system. We could do school construction grants, or we could do capital,” Deeds suggested, noting Virginia State University and the University of Mary Washington are both in need of building upgrades.
But Deeds was quick to snuff out any larger or long-term dents to the commonwealth's revenues: “The evidence is we just can’t afford it.”
That evidence, in his mind, includes President-elect Donald Trump and his allies promise to make massive cuts in federal spending. Virginia gets about a third of its income from federal funds flowing through contractors and federal employees in the state; Deeds said Virginia has some “dependency” on that funding.
With a short session scheduled for 2025, longtime calls from Democrats for larger tax reform are unlikely. But Delegate Vivian Watts, who chairs the House Finance committee, said her number one priority this session is extending a state standard tax deduction set to expire in 2026. She also wants to set its value to increase with inflation.
“We’re raising the tax-free income for everybody,” she told Radio IQ, suggesting the move could lead to bigger tax refunds.
It’s an idea that’s attractive to at least one Republican Senator: Roanoke-based David Suetterlein. He submitted an effort to extend the standard deduction last year -as did Watts- but both died in committee.
“More than 90% of Virginia taxpayers use the standard deduction when paying income tax and it's critical we continue the standard deduction,” Suetterlein told Radio IQ in a phone interview Tuesday.
“With the incoming administration in Washington, the federal standard deduction will continue," he added. "Virginia needs to do the same; failure to do so would result in a massive tax increase on working Virginians”
Suetterlein said he’s also interested in some effort that sees the standard deduction’s rate increase like Watts has suggested, but he hasn’t seen the details of her proposal yet.
Still, Watts slammed Youngkin’s hopes for bigger tax reform. The governor, like Republican governors before him, has set his sights on Virginia’s car tax. Its complexity has led to heavy local reliance, pushing it further out of reach, especially in an election year.
Watts also pointed to a flat 12% tax cut Youngkin pushed last year. The governor said it would allow "Virginians to keep more of their hard-earned money," Watts said it would have paid out more to Virginia’s most wealthy and less to its most needy.
“Youngkin played a game on that one,” she said.
As for education spending, Watts agreed with Deeds, pointing to a 2015 JLARC report which Democrats say shows Virginia still hasn’t made up for school funding cuts instituted after the 2008 financial crisis.
“While we’ve done some [education spending], we have to do more and we have to target it in the big three: low income, the developmentally disabled and English as a second language learners,” Watts said. “We’ve got to put additional resources into those special needs.”
Education spending is something Youngkin appears already hip to: he’s already started to trickle out additional school funds, including $290 million to support school construction and modernization, as part of an early peak at this 2025 budget amendments.
“Our record economic growth and the resulting surplus allows us to make this critical investment to ensure every Virginia student has access to high-quality school facilities that support academic success,” Youngkin said in a statement Monday.
Any reforms will likely be hammered out through the legislature's secretive budgeting process. Youngkin will open those negotiations with the release of his amended budget next week.
This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.
