Virginia now has the 8th highest state and local taxes in the country, as a fraction of its economy. In 2022, state and local taxes consumed 12.5% of its economy, 1.1% more than in neighboring Maryland, even though Maryland used to be one of America’s most heavily taxed states, according to the Tax Foundation.
Democratic legislators would raise taxes further, by levying a new 10% tax bracket on incomes over one million, and a 7% bracket on incomes over $600,000, as well as allowing increased local sales taxes. The bills to create a higher, 7% income tax bracket, HB 887, and authorize increased sales taxes, SB 14, are proposed by ranking Democratic legislators, and could thus potentially pass the state legislature, although they would likely be vetoed by Republican governor Glenn Youngkin. The Democrats took control of the state legislature in 2023, and the Democratic controlled state senate previously rebuffed most of Republican Governor Glenn Youngkin’s proposed tax cuts.
A series of Virginia governors from Mark Warner to Ralph Northam signed tax increases into law. Many local governments in Virginia have increased property and meals taxes, or got the legislature to allow them to increase local sales taxes to pay for school construction or other purposes.
Meanwhile, former Republican Maryland Governor Larry Hogan, in office from 2015-2023, kept a lid on spending and tax increases, even though Maryland’s Democratic legislature passed lots of bad laws (and oppressive red tape) over his vetoes. Maryland still has higher income taxes than Virginia (because it allows county income taxes on top of state income taxes, which Virginia currently does not), but sales taxes are higher for most Virginians than for Marylanders (because Maryland does not allow counties to impose their own sales taxes), and while Maryland has estate and inheritance taxes, Virginia has the hated car tax and meals taxes.
The former publisher of Virginia Business notes:
It is worth remembering Virginia’ slow drift from a lower tax/high-growth state into a high tax/slower growth state over the past three decades, and asking if the higher taxes have made life any better.
According to the Tax Foundation, state and local taxes took 12.5% of Virginia’s net product in calendar year 2022 — the eighth-highest percentage among the 50 states. Within living memory, Virginia’s tax burden was in the second-to-bottom quintile. Today we’re in the top quintile. We’re now officially a high-tax state.
The transformation has been fairly sudden. In 1977, the state/local tax take was 11.4%, but a succession of growth-minded governors and legislators pushed it down to 9.7% as recently as 2015. Then taxes went into reverse. State/local taxes rose to 10.9% of the economy in 2019, and 12.4% in 2020, where it more or less stabilized.
The rest of the story is familiar. Economic dynamism has slowed. In the 1990s, the Old Dominion could boast of one of the fastest growing state economies in the country. Today, despite high “best state for business” rankings, we’re in the middle of the pack.
States with the highest state-local tax burdens in calendar year 2022:
