Last week, Virginia reported that general fund revenues exceeded forecasted revenues by $1.2 billion in FY2024. It is not unusual for actual revenues to exceed forecasted revenues in the commonwealth. In the last four years, revenues have exceeded forecast by $2.6 billion, $1.9 billion, $1.4 billion, and $1.2 billion. If not for midyear adjustments to forecasted revenues, our revenue surplus would have been over $3.0 billion in each of the last two years.
We want to be conservative in developing and updating our revenue projections; we certainly don’t want to end up short. So… what is the problem?
By using overly conservative revenue projections, our legislative ability to formulate the best investment, spending, and tax-cutting strategies is curtailed. If the commonwealth has an additional $1.2 billion or more, should there be additional infrastructure investment? Maybe expanding the highly successful mental health initiative, Right Help, Right Now? How about increasing the pay for home health services delivered through Virginia Medicaid providers? Or perhaps, providing ongoing tax relief.
FY2024 revenues totaled $29.5 billion, or roughly 35% higher than four years ago, growing twice the rate of inflation. This year the General Assembly formulated spending plans that we deemed sufficient for Virginia, based on $1.2 billion less tax revenue than we received. That extra $1.2 billion could have been used to provide an annual $500 Child Tax Credit ($1.1 billion), eliminate the bottom two income tax brackets and lower the top income tax rate ($1.2 billion) or reduce the corporate tax rate from 6% to 3% ($1.0 billion). Or mail a rebate check — $140 per person or $560 for a family of four. Instead, the Democratic-led legislature formulated budgets based on a lower revenue projection and had tax increases in all but the final adopted budget.
Some may argue that swelling tax coffers is good news and an outcome of sound financial management. But swelling tax coffers are the result of taking more money from our citizens and leaving them less money for housing, health care, and groceries. Twenty-two states have lowered income tax rates in the last four years. Our peer states of Florida, Texas, North Carolina, South Carolina, and Georgia have all implemented reductions in corporate or personal tax rates (and Texas and Florida have no personal income tax). Our populace is mobile, and population data conclusively confirms migration from high-tax states to lower-tax states.
The 2025 General Assembly session is just over five months away, and bills can already be filed. Past sessions have demonstrated bipartisan support for lessening tax on military retirements, authorizing tax rebates, eliminating the state grocery tax, and temporarily doubling the standard deduction. Notwithstanding, our revenue growth continues to outpace inflation. Our reserve funds are at the highest level in history, and we are meeting the needs of Virginia.
In 2025, we need to develop realistic revenue projections and take action to lower our tax burdens for our citizens and businesses. We can have productive conversations on the primary beneficiaries of our lowered tax burdens. Differing opinions can and should lead to a consensus decision on the type and scope of reduction. We can use revenue triggers for enacting changes to protect our conservative fiscal approach to governing. But most importantly, we must act. We can’t overly prepare for the recession around the corner, or we will create a Virginia recession as our competitor states develop more and more competitive tax structures.
Del. Joe McNamara is a Republican legislator from Roanoke County who serves on the House Finance Committee.
