House and Senate Budgets Propose No Major Tax or Spending Increases

The Senate and House of Delegates’ financial committees met on Sunday to approve competing sets of amendments to the next Virginia budget, neither proposing any general tax increases. The Senate version included modest tax reform: a small taxpayer rebate for this year and an increase in the income tax standard deduction.

The Senate, however, allows the existing sales tax exemption for the data center industry to expire at the end of 2026, which raises almost an additional $1 billion over the next two years. A portion of the sales tax is dedicated to transportation, and the extra sales tax money to be paid by the data centers is earmarked for public transit in Northern Virginia.

The full Senate and House are expected to pass their competing budget bills in the coming week, setting up the annual conference committee process to reconcile differences before the scheduled General Assembly adjournment on March 14. Because of the Senate’s move against the data centers and its proposed tax reforms, a contentious conference is possible.

Both budgets include an increase of the base legislative salary to $45,000 per year starting in 2028. Neither committee discussed the raises openly during their meetings, with the only mention coming when a Senate Republican spoke up to announce he would abstain on that individual item.

Much of the new spending proposed by both committees is intended to use state funds to replace federal program funds that have disappeared since Republican President Donald Trump took office. For example, both use state general funds to replace some of the subsidies which have been withdrawn from federal individual health insurance. Both add money to maintain SNAP food stamp benefits and administer the program, again making up for cuts by the Trump administration and Congress.

The budgets challenge the assumptions of those who have been warning of major state tax hikes and of those who have claimed tax hikes were needed to maintain the state’s services in the wake of federal policy actions. The architects of both budgets assert they are using conservative revenue projections, which in recent years the state has usually exceeded. Neither is balanced by dipping into the state’s reserves.

The Senate Finance and Appropriations resources summary also assumes passage of legalized retail cannabis sales, producing about $70 million in new revenue, and passage of a sales tax increase on firearms and ammunition (Senate Bill 763), raising close to $100 million. 

The House Appropriations Committee balanced its version of the budget without any infusion of new taxes, other than about $270 million over two years from taxing skill games and digital fantasy gaming. Both the House and Senate refused to go along with outgoing Republican Governor Glenn Youngkin’s proposal to align Virginia with most of the recent changes under federal tax law.

There will be no state deductions for tip or overtime income, for example, and several of the business deduction provisions Congress adopted and President Donald Trump approved will not be matched for those filing state corporation income tax.

The failure to conform to new federal rules as Youngkin had planned freed up almost $1.1 billion for the legislators to spend. In all, the House budget adds just under $2 billion to the total spending proposed in Youngkin’s plan, and the Senate spends closer to $3 billion more. The introduced budget exceeded $200 billion in spending, so the changes are not significant by comparison.

The Senate’s tax reform proposals are another general tax rebate in October, this time $100 per single taxpayer or $200 per couple (returning almost $500 million late this year) and a slight increase in the standard deduction. That would go from $8,750 now to $9,200 for an individual or from $17,500 now to $18,400 for a couple for tax year 2026, saving taxpayers another $160 million over two years.  

In recent years, the legislative budget process always seems to focus more on the policy and tax decisions that are incorporated into the omnibus budget bills than on the spending they direct. Big tax policy decisions are seldom made in separate bills outside the budget.

The full budget bills pending will cover the two-year period that starts July 1 of this year.  The Assembly has already approved – well ahead of its usual timetable – a bill to amend the current fiscal year, now more than half over. Governor Abigail Spanberger (D) rushed to sign House Bill 29 Friday. Why did they push the timetable?

The majority Democrats used that budget bill as the vehicle for their aggressive changes to Virginia’s congressional maps and related adjustments to the 2026 election schedule. The so-called caboose bill is an emergency bill, which means it takes effect the day the governor signs it. But it is an emergency bill that does not require the supermajority vote total (80 percent) normally required to make a law instantly effective.

The long section setting out the new congressional district boundaries is buried at the back of the budget under Additional Enactments.  (See Section 15 near the end). The signed caboose bill also reinstated the Regional Greenhouse Gas Initiative (paragraph R on the linked text) in Virginia, another Democratic priority that would have had to wait until July 1 to become law in a regular bill.

Similar major legislative decisions may also be buried in the unnoticed fine print of the amendments to the future budgets adopted Sunday. The Senate staff produced a summary of the high points of its proposal, as did the House staff for that version, but it may take time to explore all the nooks and crannies.

Steve Haner is a Senior Fellow for Environment and Energy Policy. Steve Haner can be reached at Steve@thomasjeffersoninst.org.