Seal of the Governor
For Immediate Release: December 14, 2021
Contacts: Office of the Governor: Alenaa Yarmosky, Alena.Yarmosky@governor.virginia.gov

Governor Northam Continues ‘Thank You, Virginia’ Tour, Announces Tax Reduction for Working Virginians

Unprecedented economic strength mean Virginia can invest for future and cut taxes ~ Governor proposes ending the state grocery tax, fulfilling 2017 campaign promise; providing earned-income tax credit for working people; offering one-time rebates ~ Working people need help, even as many upper-income professionals got ahead during pandemic

RICHMOND—Governor Ralph Northam today continued his ‘Thank You, Virginia’ Tour, announcing that unprecedented economic strength is enabling the Commonwealth to both invest in long-term priorities—by raising salaries for teachers and law enforcement, funding Historically Black Colleges and Universities at record levels, boosting outdoor recreation, and more—while also reducing taxes to help working people.

The Governor noted that many working people have not experienced the booming national economy that has helped many professionals and office-based workers get ahead and build wealth during the pandemic.  

“When Virginia cuts taxes next year, it should be done in a way that benefits working people,” said Governor Northam. “Many professionals made it through the pandemic fine, as their work simply moved online. But workers haven’t been so lucky when their jobs require close contact with other people. Some jobs simply can’t move online—restaurant workers, early childhood educators, home care attendants, and others—and we all depend on the people who do this work. Virginia can help working people by eliminating the state grocery tax, providing one-time rebates, and giving a tax break to people who are working.”

Governor Northam is proposing four changes to tax policy:

  • Eliminating the state sales tax on groceries. Governor Northam first proposed eliminating this regressive tax on low-income individuals when he ran for Governor in 2017. Virginia’s unprecedented economic strength now makes this possible. The state grocery tax is 1.5%. Most states do not tax groceries. This proposal does not affect local revenues.
  • Providing an income tax cut for working families. Governor Northam proposed to make up to 15 percent of the federal earned income tax credit (EITC) refundable for eligible families, which will give a tax break to working families who need it most. The EITC reduces the amount that low- and middle-income working people owe in taxes. Making it “refundable” means people will get a refund from the state if they are working but earning income below a certain level. The amount depends on income level, marital status, and family size. This program was started at the national level by former President Richard Nixon, a Republican. The Governor proposed a similar plan in 2019.
  • Offering one-time ‘economic growth rebates.’ The Governor is proposing one-time tax rebates to everyone who files state income taxes in Virginia—$250 for individuals and $500 for married couples—so that everyone benefits from the Commonwealth’s unprecedented economic growth. Low- and middle-income working people will benefit from this the most. Virginia last offered tax rebates in 2019, providing $110 for individual filers and $220 for married couples.
  • Ending ‘accelerated sales tax’ payments for retailers. When you pay sales tax at a store or online, the retailer collects it for the state, and then forwards the money along to the Commonwealth. But when the economy collapsed in 2008, the state began requiring many retailers to pre-pay these tax payments early—before they had even collected the revenue. This placed a burden on retailers, causing them to dip into their own pockets. Governor Northam is proposing to end this system.

Together, these plans are expected to reduce state revenues a total of $2.1 billion. Most of this amount is a one-time reduction for the state’s General Fund, and $419 million is an ongoing obligation. All ongoing tax cuts will directly benefit working people through changes to the EITC and elimination of the regressive state grocery tax.

The Governor said his budget proposal also will put $1.7 billion into the Revenue Stabilization Fund, set aside $1 billion for the Virginia Retirement System, and allocate $2.8 billion for capital projects in state government and higher education buildings.

“Virginia is able to take these steps now because our sound fiscal leadership has shaped a booming economy,” said Secretary of Finance Joe Flores. “These steps are tools to make sure that working people share in the prosperity.” 

“Virginia has been named the best state for business for three years running and we have a remarkably strong economy, but not everyone is benefitting equally,” said Delegate Lamont Bagby, chair of the Legislative Black Caucus. “This tax plan focuses on Virginians who need help and who have largely not benefited from our strong economy. This is the right way to help working people and provide equity in our tax policy.”

The Governor made the announcement at The Market at 25th, a community-driven grocery store in Richmond’s East End.

Virginia’s Finances Are Strong

  • Under Governor Northam, Virginia’s financial reserves are at record levels.
    • Governor Northam leaves office proposing more than $3.8 billion in financial reserves. That’s 16.8% of state revenues--and more than eight times the amount Virginia had in the bank when he took office. In 2018, those same reserves stood at just $440 million, so he set a then-ambitious goal to get to 8% during his four-year term. 
    • This is unprecedented in Virginia history.
  • Virginia closed Fiscal Year 2021—the pandemic year—with a record surplus: $2.6 billion.
    • Unlike some other states, Virginia managed through the pandemic without cutting services, laying off workers, or borrowing to pay the bills.
  • Virginia has preserved a AAA bond rating since 1938, longer than any other state.
    • Virginia shares this first place ranking with just 13 other states.
    • When rating agency Fitch reaffirmed Virginia’s AAA in July 2021, it said:
      • Virginia's 'AAA' bond rating reflects its solid fiscal resources, conservative approach to financial operations and exceptional financial flexibility.
      • The commonwealth's strong fundamental economic profile provides a stable revenue base and solid growth prospects.
      • Virginia also maintains a low long-term liability burden relative to economic resources.
      • Virginia's fundamental economic profile remains strong, with a diverse mix of industries and high wealth. Fitch expects the commonwealth's economy to absorb the negative effects of the pandemic and return to a steady pace of growth over the near term.
      • The commonwealth's long-term economic growth prospects are solid, with above-average population growth and high education levels.

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