Virginia Gov. Glenn Youngkin proposed a new state budget Wednesday that would lower income taxes and raise the state’s sales tax in an effort to stabilize revenues and allow Virginians “to keep more of their hard-earned money.”
Youngkin’s plan for the next two fiscal years also would expand the sales tax to include digital services, such as downloading music, that are already taxed in other states. He described the plan as “closing the big-tech tax loophole.”
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“Virginia has always taxed goods,” Youngkin said. “And over the last decade, the definition of goods has evolved into new economy goods like software packages, digital downloads, streaming music and videos, cloud storage and other electronic media, on which today Virginia collects nothing.”
The Republican governor introduced his budget proposal to a joint committee of lawmakers in Virginia’s House and Senate. The plan serves as a starting point for negotiations when the General Assembly convenes in January under a Democratic majority.
Democrats swept November’s legislative elections on a campaign of protecting abortion rights, flipping the House and maintaining a Senate majority after two years of divided power. Democrats will have greater leeway to thwart Youngkin’s policy agenda. But they also must work with him to advance their own goals.
State budget plans typically go through substantial changes before lawmakers send them back to the governor for consideration and possibly more changes.
Some Democratic lawmakers criticized Youngkin’s proposed tax plan, calling it “regressive” and favoring the wealthy. Sales taxes are often considered regressive because low-income taxpayers pay a higher percentage of their income on sales taxes than high-income taxpayers.
“By lowering taxes for the wealthiest Virginians and raising local and state sales tax, the burden is shifted onto those least able to afford it,” said Don Scott, the incoming House Speaker and a Democrat who represents parts of Portsmouth.
Scott called for ideas that protect “the financial interests of all citizens, and uphold the principle that government investment should be a tool for shared prosperity, rather than exacerbating inequalities.”
Youngkin campaigned in 2021 on a promise of cutting taxes, and previously signed about $4 billion in tax relief into law in 2022. He said Wednesday that his proposals will help draw more people and more jobs to the state, while dissuading Virginians from moving away.
“Our neighbors in North Carolina, South Carolina, Tennessee, Georgia and Florida have been growing rapidly,” Youngkin said. “Americans and Virginians were choosing to go there instead of here. Each of these states had lower taxes or had started their journey to lower taxes.”
The governor said his proposed budget would cut state income taxes by 12% “across the board.” For example, he said the lowest tax bracket of 2% would be reduced to 1.75%, while the highest bracket would drop from 5.75% to 5.1%.
Youngkin said the personal income tax burden on Virginians would fall by $1.1 billion in fiscal year 2025 and $2.3 billion in fiscal year 2026.
The cuts would be offset, the governor said, by a 0.9% increase in the state sales tax, from 4.3% to 5.2%. Revenue also would come in from the sales tax expansion to digital services. He stressed that the state would not tax traditional services, such as those provided by barbers or lawn care businesses.
The governor’s budget also would invest more in workforce training, job recruitment and education, including bonuses and raises for teachers.
Youngkin’s plan calls for his previously announced increase in state spending on early learning and child care initiatives. The budget also would pump more money into a program aimed at overhauling the state’s mental health care system, in part by expanding crisis services and tackling substance abuse challenges.
About $500 million is slated for environmental and conservation programs, including efforts to reduce pollution in the Chesapeake Bay and to help the coastal city of Norfolk build a flood wall.
Youngkin said more should be done to combat the rise in antisemitism and other forms of religious bigotry. His budget proposes $375,000 for the Virginia Holocaust Museum, while providing security grants to synagogues, churches, mosques and temples.
“I know we all agree: There is no place for hate in the Commonwealth of Virginia and we must fight it together,” Youngkin said.
In reacting to the overall budget proposal, Democrats were mostly critical.
The Virginia Senate Democratic Caucus said in a statement that Youngkin’s proposal is a “slap in the face of our most vulnerable individuals.”
The left-leaning Commonwealth Institute for Fiscal Analysis said Youngkin’s plan was “skewed to mostly helping the wealthy.”
Rodrigo Soto, who leads the institute’s tax fairness and revenue campaign, said the state “should be asking the ultra-wealthy to pay their fair share of taxes to fund critical areas of investment that the governor has left out, like funding public schools, increasing access to affordable housing and more.”
Kathy Tran, a House delegate representing parts of Fairfax County, said the budget shows that Youngkin “doesn’t understand the needs of everyday Virginians.”
“We need a governor and a budget that put working families first,” said Tran, who chairs the House’s Democratic Caucus. “I look forward to working with my colleagues in the House to do just that.”