After years of effort, Virginia is giving low-income workers a major tax break


Mercedes Benson, a single mother who earns just under $50,000 a year running a cafe in Richmond, doesn’t usually expect things to go as planned during tax season.

Regarding her income taxes, Benson said she usually owes money or receives a small refund that doesn’t go very far. But as she tries to cope with credit card bills and higher gas and grocery costs, Benson, 40, says a recent change in state tax policy gave hope that she will get a little more help next April.

“The state does not let us go. We always pay something,” Benson said. “I’m just happy to have some sort of break.”

Heading into this year’s General Assembly session, the state was flush with revenue, Republican Gov. Glenn Youngkin was eager to deliver on promises of deep tax cuts, and Democrats still held enough power to insist on at least some of their priorities. These factors have combined to bring about a policy change that has been in the works for years: an earned income tax credit (EITC) that is now partially refundable.

Making Virginia’s version of the credit refundable, a change brought in by the new state budget, means that instead of just reducing the amount a low-income filer owes without returning any money, it can now lead to a larger refund – or create a refund that otherwise wouldn’t exist.

Proponents say the change will mean hundreds of dollars flowing back into the pockets of about 600,000 working-class earners eligible for the credit next tax season, many of whom don’t earn enough to owe income taxes. state, but pay sales taxes and contribute to state revenue in other ways. The exact amount of the credit depends on the filer’s income and the number of children they have. For the 2022 tax year, the maximum credit amounts range from $560 for filers without children to $6,935 for filers with three or more children, according to the tax authorities.

Virginia has made 15% of this credit refundable on state tax returns, joining at least 26 other states and the District of Columbia with similar policies. according to the National Conference of State Legislatures.

Ashley Kenneth, president and CEO of the progressive Commonwealth Institute for Fiscal Analysis, which has been advocating for change for 15 years, said enhanced credit will be particularly helpful for black and Latino workers, who are more likely to have incomes. that cause them to miss out on other forms of tax relief approved by the General Assembly.

“It’s having an outsized impact on families who need help the most,” Kenneth said. She added that helping those at the bottom will bring some balance to a “regressive” state system that taxes all income over $17,000 at the same rate.

Over the next few weeks, the state send 3.2 million tax refunds up to $250 per person, but that money only goes to Virginians who have earned enough to owe state income taxes.

For a married couple with two children earning $24,000 a year, the refundable EITC could be worth $827 next tax season, according to a online calculator the Commonwealth Institute created to estimate its impacts.

Making the EITC reimbursable was one of the key economic proposals recommended in a report released in January by a commission established by former Governor Ralph Northam to study racial inequality in Virginia and how it might be addressed. Black workers will disproportionately benefit from the change, according to this study, as they make up 32% of the EITC-eligible population, although black Virginians make up about a fifth of the state’s population.

“It’s a huge win for us as defenders,” Kenneth said. “But an even bigger win for low-income working families who will now get relief at tax time.”

Why now?

Of the. Cia Price, D-Newport News, pointed to several factors to explain the EITC’s breakthrough on refundability: the work of those who championed it for years, Senate Democrats “committed” during budget negotiations and a broad recognition that the COVID-19 crisis is hitting the poor harder than the rich.

“The pandemic just had a way of exposing things in a new light,” said Price, one of several lawmakers who sponsored EITC legislation last session.

Sen. George Barker, D-Fairfax, who helped negotiate the bipartisan tax deal, said an important factor was that the state had enough money to let both sides get a piece, but not the all of what they wanted.

“We were able to do things where both sides got a win out of it,” Barker said.

Bills to enact a refundable EITC in Virginia have been proposed for decades, but the idea has recently gained traction due to changes in federal tax policy. This included former President Donald Trump’s 2017 tax cut plan, which Democrats criticized as biased in favor of the wealthy.

When Northam proposed making the EITC refundable in the first two years of his term, Republican leaders dismissed it as an expensive giveaway that would stick the middle class with the bill.

The GOP characterized the policy as helping people who don’t pay income taxes at the expense of those who do.

“We keep talking about tax cuts,” Del said. Nick Freitas, R-Culpeper, during a 2019 committee hearing on a failed refundable EITC bill. “But if we give the money back to someone who didn’t pay taxes, or who gets more than they paid in taxes, is that a tax cut? Or is it an expense? »

After Democrats took control of the General Assembly in the 2019 election, the Northam administration pursued a plan to send direct tax refunds instead of making structural tax changes. The arrival of the COVID-19 pandemic in 2020 led to a period of fiscal caution as policymakers braced for economic disruption. But in 2021, the state was eyeing record revenue surpluses, and Youngkin’s victory in November meant tax relief would be high on the legislative agenda. In his final budget proposal, Northam included a partially refundable EITC along with several other tax cuts that Youngkin campaigned on.

A signature from Youngkin, but no endorsement

In the past, the EITC concept has attracted support from across the ideological spectrum because it is a pro-work incentive largely targeting people with children. It is often compared to liberal economist Milton Friedman’s proposal for a “negative income tax”, an anti-poverty idea that he says would be more effective than government aid programs in directly giving money. money to low-income people and letting them use it as they see fit. see good.

Youngkin signed the budget making Virginia’s EITC partially refundable, but he doesn’t highlight the politics in speeches about the $4 billion in tax cuts the state approved under his leadership.

When asked if Youngkin had decided to back a refundable EITC or if it was mostly a concession to Democrats to secure other gains like lower groceries taxes and higher of the standard state income tax deduction, the governor’s office has not established a clear position.

“The Governor appreciated the work of the House and Senate working with him to deliver a budget that provided the greatest tax relief in Virginia’s history while focusing on reforms that can benefit taxpayers,” said said Youngkin spokesman Macaulay Porter. “Whether the issue is the cost of groceries, college affordability, housing, or the tax burden, the Governor’s commitment is to reduce the rising cost of living due to failed leadership and Washington’s economic policies.”

During this year’s legislative session, Youngkin administration officials opposed stand-alone bills to make the EITC refundable.

Republicans have pushed back against accusations that their policies are leaving low-income Virginians behind, arguing that their plan to scrap the state grocery tax would help low-income people, who spend a higher percentage of their food income. Republicans also framed Youngkin’s failed plan for a gas tax exemption in populist terms, insisting that even a slight drop in gas prices might not mean much for the working class. laptops, but would help workers who have to drive regularly.

With state revenues still looking strong, Youngkin said last month that he was plans to get nearly $400 million in tax relief next year. Another round of tax talks could create a new opportunity for Democrats to try to revive the EITC by increasing the percentage of the credit considered refundable.

“Fifteen percent is just a step in the right direction. There are other states that have up to 30% and more,” Price said. “Ultimately, Virginia will have to come to terms with the fact that the way we tax people is backwards and unfair, and continues to proliferate wealth gaps between communities of color.”

Benson, the cafe worker from Richmond, said she doesn’t know how much extra money she’ll get next tax season. Whatever the amount, she says, she’ll likely use it to pay a bill or save it.

“I would be happy if it was $50,” she said. “Everything would be fine.”


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