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State Budget: Tax Cuts and Marijuana Crackdown

This commentary comes from the nonpartisan Virginia Family Foundation. 

The General Assembly is closer to passing the 2022-2024 biennium budget, as the House and Senate budget conferees, with the active input from the Governor’s staff, released a compromise deal over the weekend.  Their proposal not only contains some family-friendly tax relief, but it also addresses some major problems created by the marijuana industry.

On marijuana, Republican-led House and Democrat-led Senate budget negotiators agreed to language that: 1) Creates new misdemeanor penalties for possession of more than four ounces of marijuana in a public place; 2) Imposes strict labeling and testing requirements for the sale of industrial hemp products; 3) Bans the sale of edible substances that contain high potency THC to anyone under 21; and 4) Prohibits edible THC products (or “gummies”) from being sold in “certain child-friendly shapes” that would make it more likely for children to mistake them as candy. While we maintain that the state budget is not the best vehicle to enact substantive policies because it circumvents the important and transparent committee debate process for vetting ideas, these changes will provide some strong place holders (for two years) until the General Assembly can institute more permanent solutions.

The compromise agreed upon by the budget conferees also provides approximately $4 billion in tax cuts overall.  Here’s a few of the notable tax provisions:

  • Elimination of the 1.5% state sales tax on groceries and essential personal hygiene products beginning January 1, 2023 (while maintaining the 1% local option);
  • Income tax exemption of up to $40,000 phased in over four years for retired veterans starting at age 55;
  • Increased standard deduction from $4,500 to $8,000 for individuals and $9,000 to $16,000 for joint filers (a 78% increase); and
  • A one-time tax rebate of up to $250 for individuals and $500 for married couples, which would be mailed (or direct deposited) sometime after July 1.

Although the increase in the standard deduction failed to meet Governor Youngkin’s request to double it, this is a major win for working families this tax year that should save families on average $575 this year.

One other noteworthy item in the budget is a provision that prevents the Virginia Lottery from granting a license for any potential Richmond-based casino for at least another year and a half while a study is conducted to determine the economic viability of a casino in Petersburg. This buys us more time to keep fighting this terrible idea, as the Richmond City Council is insisting on a “re-do” after we helped to defeat the casino referendum at the ballot last election.

Lastly, while the tax cuts are welcomed, Virginians should not ignore the massive growth of this budget when compared to previous budgets. The total revenue from both general fund and non-general fund sources is about $166 billion over two years, which is a 17.5% increase over the last biennium budget and almost a 41% increase over 2018’s budget, according to analysis by the Thomas Jefferson Institute.

The full General Assembly meets June 1, to vote on the budget compromise.  Once the General Assembly passes the budget, which they are expected to do, Governor Youngkin can propose amendments. Amendments offered by the governor only need simple majorities in both chambers to be adopted. More on that later.

The next few weeks will determine Virginia’s fiscal outlook, so stay tuned for more updates!

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