Budget negotiations between the House of Delegates and Senate broke down on Tuesday over tax cuts sought by Gov. Glenn Youngkin, who could call a special session of the General Assembly to bring the parties back to the table.
House Appropriations Chairman Barry Knight, R-Virginia Beach, called off the negotiations because he said Senate Finance Co-Chair George Barker, D-Fairfax, had "walked away" from a commitment to approve a combination of ongoing tax cuts and one-time tax rebates that would have reduced state revenues by about $900 million in the two-year budget the governor signed last year.
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Instead, Senate negotiators offered on Tuesday to double a proposed one-time rebate to $200 for individual taxpayers and $400 for couples filing jointly, which would have cut budget revenues by about $900 million, but without other tax cuts Youngkin and House Republicans are seeking.
The latest budget impasse goes back to an agreement that Knight said he made with Barker and Senate Finance Co-Chair Janet Howell, D-Fairfax, at the end of February, when budget talks broke down without an agreement on revising the two-year, $177 billion state budget. The same deal was on the table when House and Senate budget negotiators returned to Richmond on Monday to resume talks on reaching an agreement.
"The deal has never changed, it has never wavered," he said in an interview with the Richmond Times-Dispatch on Tuesday. "I'm not sure what goes forward from here. A deal is a deal."
But Barker said he never agreed to the deal that Knight proposed, either in February or in subsequent informal luncheon meetings the three budget leaders have held since then.
"I did not agree to anything," Barker said in an interview on Tuesday. "At the meeting where he proposed it, I intentionally did not say a word."
The new fiscal year begins on Saturday. The state already has a two-year budget in place. Lawmakers are negotiating over annual revisions to the spending plan.
Howell is traveling out of the country with family, but Barker said, "I expect the governor will call us into special session in the next few weeks to deal with all of this."
Knight said he briefed the governor on the breakdown in negotiations, after first informing House Speaker Todd Gilbert, R-Shenandoah.
"I'll come up (to Richmond) on a moment's notice if George says he'll honor the deal," Knight said.
The proposed deal included a one-time rebate of $100 for individual taxpayers and $200 for couples, for a cost of almost $463 million in the fiscal year that begins on Saturday. The Senate initially had proposed rebates of $150 for individuals and $300 for couples, for a total of about $700 million.
Knight had dropped Youngkin's proposal to reduce the corporate income tax rate by 1 percentage point, but he still wanted to increase the standard deduction for taxpayers who don't itemize their deductions, eliminate an age threshold for a new exemption of military retirement income and increase a deduction for businesses.
The biggest sticking point remains the governor's proposed to reduce the top individual tax rate by a quarter percentage point. Knight's proposal instead would have changed all four of the income brackets to make them more progressive.
For example, the top rate of 5.75% would apply to anyone making more than $30,000 a year in adjusted gross income, instead of the current level of $17,000. Taxpayers earning between $8,000 and $30,000 a year would pay 5%. The total cost of that proposal would have been $308.6 million in the coming fiscal year and $655 million in the following year.
The total cost of the Republican package would have been $891 million in the first year and $911.3 million the following year.
