Federal Tax Changes Caused Nearly $800 Million Va. Revenue Surplus

Much of the money will be disbursed in a one-time refund in October

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Changes to the federal tax code last year that unintentionally raised the state income tax for many Virginians was the largest factor in a $778 million budget surplus for 2019.

Gov. Ralph Northam's office said state income tax revenue rose by 7.2 percent, which is higher than the forecasted 3.3 percent the state would have had without the tax windfall. These funds were expected, but not included in the official forecast.

"With revenue collections coming in at $2.4 billion for the month, I am happy to announce that preliminary figures indicate that the state concluded the year with a general fund revenue surplus of approximately $778 million," Northam said in a news release. "Since I took office in 2018, we have worked to diversify Virginia's economic base and make strategic investments in key fundamentals like health care, infrastructure, workforce development, and education."

Much of this money will be diverted back into the hands of taxpayers through a one-time refund in October designed to compensate taxpayers for the inadvertent increase. Single filers will receive $110 and couples will receive $220.

"We have a history of being prudent and responsible, and when you combine that with a growing economy, the results are positive," House Appropriations Committee Chairman Chris Jones (R., Suffolk) said in a news release. "It's good news for sure, but we have to continue to be conservative. A significant portion of this one-time money will go to the taxpayer relief fund and our revenue reserve funds. We must look around the corner, and that's what we will continue to do."

Stephen Haner, a senior fellow at the Virginia-based Thomas Jefferson Institute, told The Center Square via email that because most of this surplus was caused by changes in the federal tax code, "it is not really a sign of a booming economy."

"Some will be returned in those bonus refunds in October and some should be placed into the Taxpayer Relief Fund for future tax reform," Haner said. "The [government] must decide by [September] 1 how much goes into the new Taxpayer Relief Fund."

Although the Tax Cuts and Jobs Act signed by President Donald Trump in 2018 was designed to lower taxes, Virginians were negatively impacted because of their state's tax code. The federal legislation raised the standard deduction, but because Virginia's standard deduction was far lower—and the state tax code requires tax filers to take the same state and federal tax status—some people were forced to itemize less and pay more taxes as a result.

Although Northam initially planned to use this money for more spending programs, he eventually signed bipartisan legislation that raised the state's standard deduction to mirror the federal plan. The plan also provided a one-time refund for taxpayers for the additional money they paid in taxes this year.