New York-size tax hikes would kill affordability in Virginia

OPINION:

Virginia Democrats campaigned on affordability, yet now seem intent on raising taxes.

The 2026 legislative session began two weeks ago, and the Democratic-controlled state House and Senate already have proposed expanded taxes on property improvements, lodging, event admission, employee benefits, equipment and electric generators, plastic bags, fantasy football, firearm suppressors, local sales, income and investments.

Granted, some of these proposals will die in committee, and the legislature may reject others that make it to the floor. Still, lawmakers considering this deluge of tax proposals would do well to remember that taxes are like weeds. Once they take root, they keep popping up where they are not wanted.

Tax increases show up not only in annual direct payments to the government but also in higher everyday costs. That’s especially true of taxes on productive activities, such as income taxes and investment taxes — two of the key proposed tax hikes in Virginia.

The eight states with the highest top income tax rates — California, Hawaii, New York, New Jersey, Oregon, Minnesota, Massachusetts and Vermont — are terrible examples to follow if you care about affordability. That list includes the three most expensive states in the country, plus the fifth, seventh, 11th and 13th most expensive states, according to the Missouri Economic Research and Information Center.

Of the eight highest-income tax states, only Minnesota would qualify as somewhat affordable (though it has its own set of problems).

Virginia HB 188 would push the state’s top tax bracket (5.75%) from near the middle of the pack among the 50 states all the way up to the fifth-highest state income tax rate, right behind New York and New Jersey.

Supporters would note that the 10% tax bracket would apply only to Virginians with at least $1 million in taxable income. Yet the tax increase’s effect on the cost of living would extend to the middle class — just as it does in states such as New York, California, New Jersey and Massachusetts.

In New York state, taxpayers who earn $2 million annually are in the 6.85% tax bracket, and New York’s top tax rate of 10.9% kicks in at $25 million of taxable income. Similarly, California’s top 14.4% tax rate kicks in at $1 million of taxable income, New Jersey’s 10.75% tax rate kicks in at $1 million, and Massachusetts’s 9% tax rate kicks in at $1.08 million.

Even if the top tax brackets don’t directly affect middle-income residents of those states, punitive taxation on high-income earners falls on small and midsize businesses and is then passed down to consumers.

Everyday New Yorkers, Californians and residents of New Jersey and Massachusetts pay the price (literally) when their elected officials tax and spend with reckless abandon. Groceries are 4.5% more expensive in those high-tax states than in the average state; transportation is 13% more; health care is 16% more; utilities are 26.7% more; and housing is 83.2% more.

To be sure, bad policies run in packs, so taxes aren’t singularly responsible for the high cost of living in these states; overregulation shares some of the blame. Still, excessive taxes and government spending are key drivers of unaffordability.

Another problematic tax proposal in the Virginia House of Delegates is an additional 3.8% tax on net investment income. That proposed tax would apply in addition to the Virginia income taxes just discussed (as well as steep federal taxes).

Piling additional taxes onto investment would be self-defeating. Investment taxes do more to drive away and distort investments than to raise tax revenue.

In the face of investment taxes, many investors — especially wealthy ones — can shift their assets out of tax harm’s way or strategically time the realization of their investment income to minimize their tax liability.

By distorting investment decisions and making the state a less attractive destination for high-income individuals, the extra investment tax could cost Virginia more tax revenue than it raises. Instead of satiating lawmakers’ desire for more tax dollars, the investment tax may leave them searching for yet more ways to shake down taxpayers.

Gov. Abigail Spanberger campaigned on affordability. If she wants to live up to her promise, she must rein in her party’s impulse to tax everything that moves — or remains stationary.

• Preston Brashers is the research fellow for economic and tax policy at the Plymouth Institute for Free Enterprise at Advancing American Freedom.