Virginia Assembly OKs Budget with $1B Middle-Class Tax Relief

RICHMOND — The Virginia General Assembly passed a $188 billion biennial budget Saturday for fiscal years 2026-2028, capping weeks of negotiations with $1 billion in fresh tax relief aimed at middle-class families. Gov. Glenn Youngkin hailed the compromise as a victory for fiscal conservatives, permanently extending higher standard deductions — $8,750 for individuals and $17,500 for joint filers — set to expire in 2027 without action. The deal also locks in Virginia's expanded earned income tax credit, a refundable boost primarily aiding lower-wage workers in Hampton Roads factories and Northern Virginia suburbs.

Youngkin proposed the framework Dec. 17 before the Joint Money Committees, including governor-elect Abigail Spanberger, touting Virginia's economic boom and vowing no new taxes. The budget aligns state policy with federal changes from last summer's tax overhaul, allowing partial deductions on tips, overtime and car loan interest — starting at 25% in 2026 and rising to 50% thereafter. Overall, Youngkin's tax moves have saved taxpayers $6 billion, with $3 billion in rebates, projecting another $7.5 billion over four years if permanent.

Bipartisan lawmakers rejected amendments for broader cuts like ending the grocery tax or a refundable child tax credit, which advocates said would best help families with children in Richmond and Roanoke facing inflation. The Commonwealth Institute praised proposals boosting the EITC to 25% of federal levels but noted the final bill prioritizes middle-income households over the poorest 80% of filers under $24,000. Health funding surged $824.5 million, fully covering a $720.5 million Medicaid spike to $16 billion in general funds.

Freedom Virginia lauded the assembly's focus on middle-class priorities while decrying Youngkin's vetoes on medicine cost cuts, signaling battles ahead in the incoming Spanberger administration. The budget swells rainy day reserves to $5 billion, including a $300 million deposit, fortifying against downturns in a state where Northern Virginia tech jobs drive 40% of revenue.