Virginia House Democrats accused House Republicans of holding tax filings hostage based on a Republican attempt to halt an inadvertent tax hike caused by a federal tax code change on deductions.
The two Republican bills in question, which would prevent the tax hike, passed the House Finance Committee on Monday. The bills, sponsored by Delegates Tim Hugo, R-Fairfax, and Chris Jones, R-Suffolk, would also conform the state tax code to the federal tax code, which would make tax filings easier and increase the likelihood that returns come on time.
Although Democrats are pushing for tax-code conformity, they have criticized Republicans for refusing to sign onto legislation that would conform the state tax code to the federal tax code while keeping the tax hike intact for the time being. Democrats have stated that the state should first conform the tax code to the federal tax code and then debate policy.
"Tax conformity remains House Democrats' top priority," Kathryn Gilley, a spokesperson for the Virginia House Democrats, said in an email. "We cannot hold this year's tax filings hostage to a debate over tax policy, and we will push to immediately conform to the federal tax code. Beyond the issue of conformity, it is incumbent upon the General Assembly to address the impacts of the irresponsible Trump tax plan."
If Democrats and Republicans do not come to an agreement on tax conformity shortly, there will be a greater chance of late returns and additional complexities in tax filings. However, Republicans have put their foot on the ground and stated that a bill that doesn’t stop this tax hike is "dead on arrival" in the House, which Republicans control by a slim 51-48 majority. The party also holds the Senate, 21-19.
"Since last summer, we have been united against [Democratic] Governor Ralph Northam’s plan to pass on higher taxes in order to finance new state spending," House Speaker Kirk Cox, R-Colonial Heights, said in a news release. "The House Finance Committee acted today to set aside all of the individual income tax revenue from the federal tax cuts to ensure that we provide tax relief to those affected by federal and state tax law changes."
The federal Tax Cuts and Jobs Act sought to alleviate tax burden by increasing the standard deduction rates. However, because Virginia code requires that Virginians take the same federal and state tax code – and Virginia has a lower standard deduction – residents will be forced to itemize less and pay more in taxes if there is no change to the state code. This would cause an effective tax hike of $1.2 billion over the two-year budget term.
Hugo’s bill would change Virginia code and allow residents to itemize regardless of what they register on their federal taxes, which would avoid the tax hike. It would also seek to decrease the overall tax burden by raising the state-level standard deduction.
However, because this bill cannot take effect until next year’s taxes, Jones’s complementary bill would return the any money lost to taxpayers from the tax increase back to the taxpayers.
"Though we recognize that we must act on conformity, we are committed to providing tax relief to those impacted by the federal tax changes," Jones said in a news release.
Democrats, however, see it differently.
"Delegate Hugo's bill doubles down on the Trump plan's inequities, and JLARC has found its costs to exceed the revenues gained," Gilley said. "We need to provide tax relief to those who need it most – and the Hugo bill fails to accomplish that."
The bills may have the necessary votes in the House and Senate, but Northam has stated that he wants tax conformity first, before debating tax hikes.