Thanks to Federal Tax Code, Virginia Could See Millions in New Revenue

Jun 7, 2018

Credit Paul Sableman / Flickr

The new federal tax code may be having an unintended consequence here in Virginia: higher state taxes. And, that could mean hundreds of millions of dollars of new revenue.

It’s kind of counter-intuitive to think of federal tax cuts leading to more state revenue. But one quirk of Virginia tax law is that people who take the standard deduction on their federal tax returns also have to take the standard deduction on their state tax returns.

Nicole Kaeding at the Tax Foundation says that’s likely to have dramatic consequences for Virginia’s budget.

“Because more individuals will be taking the standard deduction than they had in previous years, there will be fewer deductions taken in the state of Virginia, meaning there’s more revenue generated.”

About $300 million, according to state officials.

Chris Wodicka at the Commonwealth Institute says state lawmakers should think carefully about what to do with that money.

“Trying to restore funding to our schools that are still down on a per student basis since the recession. Or trying to find a way to provide some tax cuts to folks who are left out of the federal tax law.”

Like a working families tax credit, also known as an earned income tax credit. Wodicka says that would give targeted tax cuts to people who didn’t get much of a break from the federal tax cuts enacted last year.

This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.