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‘Trump tax scheme’ or taxpayer relief? Budgets pass easily, and a tax deal is still cooking

BY MICHAEL MARTZ Richmond Times Dispatch, February 7, 2019.

The House of Delegates and Senate took different paths to passing a new state budget on Thursday, but they could come together soon over Virginia tax policy.

The House adopted its version of an amended two-year budget on a 73-25 vote, after a two-hour partisan battle over tax policy and spending in the aftermath of a federal tax reform law signed more than a year ago by President Donald Trump.

In contrast, the Senate briskly adopted its version of the budget on a 40-0 vote after agreeing to half a dozen spending increases totaling $22.5 million. The deal drew Republicans and Democrats closer together on how to handle an expected $1.2 billion windfall from higher taxes on Virginia taxpayers because of the federal Tax Cuts and Jobs Act.

“It is a significant step forward,” said Senate Majority Leader Tommy Norment, R-James City, who called the unanimous vote “nothing short of miraculous” in a chamber that divided sharply along party lines over tax policy a week ago.

The House, Senate and the administration of embattled Gov. Ralph Northam were working late Thursday to reach agreement on how to conform Virginia’s tax code to the new federal tax law so the state can process the more than 550,000 tax returns it has already received, issue refunds, and give guidance to taxpayers on the rules they must follow.

Northam, a Democrat, is under siege in a scandal that erupted almost a week ago because of a racist photo on his medical school yearbook page. The governor wants quick conformity of the tax codes before deciding on changes to state tax policy in an election year for all 140 legislative seats.

The coming elections loomed over the budget in the narrowly divided House, where a rhetorical battle raged over whether the proposed budget “doubled down on the Trump tax scheme” by shifting income tax revenues to higher-earning households or reversed a potential backdoor tax increase on middle-class Virginia families.

Ultimately, the question was whether to spend the “limited time” money generated by temporary provisions of the Trump tax law or hold $950 million in anticipated revenues in a proposed “taxpayer relief fund” until lawmakers can determine how to return it to the taxpayers who will pay higher state taxes.

Democrats battled unsuccessfully to restore cuts in spending on financial aid for college students, affordable housing, school modernization and stormwater management funds for flood-prone localities, while boosting the state’s financial reserves.

“Do we want to squander this opportunity by doubling down on the Trump tax scheme?” asked Del. David Toscano, D-Charlottesville, former House minority leader.

House Appropriations Chairman Chris Jones, R-Suffolk, led the defense of the budget his committee produced.

“You can’t say you’re against the Tax Cuts and Jobs Act and then say you want to spend the money, because you can’t have it both ways,” Jones said during a debate over education spending.

The House budget would cut money for school divisions with a high percentage of at-risk students from low-income homes, but would increase funding from the Virginia Lottery that school systems could spend as they like without having to match it with local funds, he said.

Similarly, the budget would cut financial aid proposed by Northam for colleges and universities, but offer almost $46 million in state money to those institutions if they agree not to raise tuition on in-state students, Jones said. “If you do not increase the need for tuition, the demand for financial aid does not grow.”

The House budget would not change Virginia tax policy, he said, only sequester the windfall until policymakers decide what to do with it.

But Democrats took aim at separate legislation passed by the House early this week that would make major changes in tax policy in ways they said would give money to high-income households that benefited most from the Trump tax cuts but would pay disproportionately less in state taxes than more modest working families.

“We have produced a House tax policy that does not return the money to the people who paid it,” said Del. Vivian Watts, D-Fairfax, who has led the Democratic opposition to tax legislation approved by a party-line vote on Monday.

Democrats produced their own tax relief plan in a floor amendment that would have given a $200 refund to households earning less than $50,000 a year and $100 to those earning between $50,000 and $125,000 a year.

“Here’s your opportunity to vote for a tax cut,” Toscano told Republicans.

The House killed the proposal on a 51-48 party-line vote.

Del. Tim Hugo, R-Fairfax, sponsor of the Republican tax policy proposal, framed the budget vote in purely partisan terms.

“There is not a tax increase they don’t endorse,” he said of Democrats. “There’s not a spending plan they don’t embrace.”

But 22 Democrats joined the Republican majority in voting for the final budget. Del. Mark Sickles, D-Fairfax, also voted with Republicans in defense of the proposed taxpayer relief fund, which survived by a 51-47 margin.

“I thought it was a reasonable way, since we didn’t have agreement on tax policy, to hold the money in one place until we decide,” said Sickles, a member of the conference committee that will begin work next week to reconcile the House and Senate budget proposals.

In the Senate, the Republican majority soothed Democratic objections by agreeing to increased spending on initiatives to hire lawyers to help people avoid eviction from rental housing, improve water quality, add school counselors, provide permanent supportive housing for people with behavioral health problems, expand affordable housing, and assist localities in controlling stormwater.

“The Democrats and the Republicans got together on a collaborative basis and we were able to reach an understanding,” Norment said.

mmartz@timesdispatch.com

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