It is profoundly disappointing to Democrats in the General Assembly to be focused on negotiations with Republicans on budgetary priorities, while so much our attention is seems inevitably to be drawn to the painful shortcomings of our state leaders. The outrageous inequities of the Ryan-McConnell tax bill, ironically offered many state governments, including Virginia, the opportunity to offset the Federal government’s giveaway to the wealthy (including wealthy Virginians) by redirecting the so-called state tax windfall that Virginia receives to programs that benefit lower income residents. The arithmetic is a bit complicated, but the total dollars “in play” are large enough that if Democrats had the courage and political power to execute an audacious progressive vision, we could have an impact on the working poor that is in the same ballpark as Medicaid expansion had last year.
My Republican colleagues would prefer simply making “technical adjustments” in Virginia tax law that would have the effect of passing through tax reductions to Virginians would have the same distribution of benefits across income levels as the Federal program. The argument in favor of this is simple enough: the benefits should be distributed in proportion to the taxes paid. That’s one way of looking at it. The practical effect of this approach, though, is to perpetuate and reinforce the inequity of the Federal cuts — particularly since we are eliminating the refundable Earned Income Tax Credit.
Both the Senate and the House of Delegates have versions of the budget that attempt to achieve a middle ground. Both versions also deal with a problem that I have not yet mentioned. Since we haven’t yet enacted the rules, the Virginia Department of Taxation currently can’t process state tax returns. Many taxpayers are anxious to file as soon as possible, because they anticipate refunds. In addition, for legislation enacted to be effective immediately (i.e. emergency legislation), it must pass by a margin of 80 percent in both the House of Delegates and the Senate. Failing to receive 80 percent would mean that the statute would not take effect until July 1, which would then become the earliest date for beginning the processing of tax returns and much-awaited refunds.
To meet this challenge, both the Senate and the House of Delegates versions of the tax reform (conformity and internet sales tax actions) bill enable the return most of the state’s windfall to the taxpayers with the addition of a Taxpayers Relief Fund (which is unappropriated to date) while reserving some portion of the total to fund relatively uncontroversial needs. For example, the Senate version would allocate funds to provide a 5 percent salary increase to Virginia teachers. The House funds the 5 percent teacher raise also. This teacher pay raise is long overdue, but there are possible complications which haven’t been resolved. No doubt, including this “goodie” in the budget mix would be as irresistible to the electorate as it is to many of my colleagues.
This complicated introduction is necessary because my real purpose in this column is to discuss the potential conflict between political courage and political expediency. The solutions currently on the table that could resolve the returns processing logjam, make structural change to our tax law with relatively little benefit to those most impacted by historical income inequity.
With Governor Northam’s commitment — which we don’t now have — and Democratic solidarity in the legislature, progressives would be in a position to do something great, in accordance with our values. The challenging test for progressives is that this approach would result in somewhat higher total state taxes paid by middle and upper income Virginians, many of whom are Democratic voters, including many of my constituents. No doubt, achieving this goal would not be pretty — think shutdown — and the political fallout in November could well be punishing. The choice between courage and expediency is difficult, but definitely coming our way.