- Associated Press - Tuesday, December 18, 2018

RICHMOND, Va. (AP) - Virginia is set for a heated debate over what to do with a projected multibillion dollar windfall from last year’s federal tax overhaul.

Democratic Gov. Ralph Northam presented a state budget plan Tuesday that holds on to the money, arguing the extra cash is a “once in a lifetime” opportunity to make investments in long-neglected areas while also padding the state’s reserves. He’s also proposing expanding tax credits for lower-income families.

“We have a unique opportunity to help Virginians keep more of their paycheck while investing in teachers, public schools, roads, clean air and a stronger economy that lifts everyone up,” Northam told lawmakers at the Capitol.

Republican leaders of the GOP-controlled General Assembly quickly shot those plans down, calling them a de facto tax hike on hundreds of thousands of taxpayers.

“It’s certainly not a historic opportunity for the middle class, who I think will feel it very much in their wallets,” said House Speaker Kirk Cox.



Republicans said they will detail their tax plan early next year before the legislative session start, but said their broad goal is to allow Virginians to keep more of their money.

The federal tax overhaul slashed tax rates but also put new limits how businesses can account for losses and what kind of deductions individuals can take- changes projected to boost state tax revenues.

Under Northam’s plan, many Virginia taxpayers could see their overall tax bills decline because of federal tax cuts while still paying higher state taxes.

The Northam administration is projecting an increase of $4.5 billion through fiscal 2024 in additional individual and business state taxes because of the federal tax overhaul, including $1.2 billion in the governor’s current two-year budget plan.

Northam plans to put the money in the pockets of low- and moderate-income families by making the earned-income tax credit fully refundable. The credit is used to reduce a family’s tax burden, but if the amount owed in taxes is less than the credit, the taxpayer does not receive the difference. Northam’s proposal would pay the taxpayers the full credit amount, which is capped at yearly income of $54,000 for a family of four.

“The changes in the federal tax code basically help high earners and corporations. It does very little for individuals that are making less than $54,000 a year,” Northam said.

Because the federal tax cuts to individuals are only temporary, the Northam administration said it is focusing its spending from the projected windfall on one-time expenses instead ongoing costs. Those include $80 million for school construction loans, $20 million to speed up development of so-called “megasites” aimed at luring large manufacturers, and a 1 percent bonus for state employees.

The fights over taxes during next year’s legislative session could come on many fronts. The Northam administration and the Virginia Society of Certified Public Accountants want lawmakers to pass legislation as early as possible next year that conforms the state tax code with the new federal definitions of income.

But GOP could use that so-called “conformity” provision as leverage in the larger tax debate. Republicans also want to allow state taxpayers to itemize their deductions regardless of whether they took the standard deduction on their federal income taxes, which is currently not allowed.

Outside of the tax debate, lawmakers will still have plenty of extra money to play with during the next legislative session. That’s due to a stronger stronger-than-expected economy, increased federal defense spending, and a Supreme Court decision allowing states to force out-of-state online vendors to collect sales tax.

Northam wants lawmakers to approve ongoing spending increases on teacher pay, increased financial aid for university students, more legal aid for people facing evictions, and other items.

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