Fiscal expert says replacing lost revenue would be difficult
Lt. Gov. Winsome Earle-Sears, left, called for a repeal of the car tax during a rally last week. Her opponent in the Virginia gubernatorial race, Abagail Spanberger also called for an end to the tax. FILE PHOTOS
By Michael Martz Richmond Times-Dispatch
Lt. Gov. Winsome Earle-Sears is trying to ride a familiar Republican campaign slogan to victory in the governor’s race: no car tax.
Nearly 30 years after Jim Gilmore used the slogan to reach the Executive Mansion, Earle-Sears resurrected it in a brief speech to cheering volunteers before a campaign training session in Fairfax County on Tuesday.
“We’re going to get rid of the daggone car tax!” she proclaimed.
Both tax proposals were part of Gov. Glenn Youngkin’s proposed budget this year, but the Democratic-controlled General Assembly dismissed both efforts. It chose instead to use $1 billion in excess state revenue to provide one-time income tax rebates to a broader swath of taxpayers in October, weeks before the election between Earle-Sears and former U.S. Rep. Abigail Spanberger. The winner will be the first woman to serve as governor of Virginia.
Spanberger, who left Congress after three terms to run for governor, said through a campaign spokesman on Thursday that she, too, would like to get rid of the car tax by finding a bipartisan way to get it done.
“Virginians have heard from politicians year after year who vow to eliminate the most hated tax in Virginia — the car tax — only to see empty promises and gimmicks,” Connor Joseph said in a statement. “As governor, Abigail will work with both Democrats and Republicans to put Virginia on a real path towards eliminating the car tax once and for all.”
Like Gilmore in 1997, Earle-Sears is trying to capitalize on public hostility to the tax, but neither she nor Spanberger has said how she would eliminate it without crippling local governments’ ability to provide essential services — such as public education, law enforcement and emergency response — or saddling the state budget with an enormous financial obligation in an increasingly uncertain economy under President Donald Trump.
“It’s a tough nut to crack because there’s no way to offset those local revenues one-to-one without the state revenues,” said Jim Regimbal, a veteran fiscal analyst who advises the Virginia Association of Counties and the Virginia Municipal League, representing hundreds of cities, counties and towns across the state.
Youngkin first floated car tax repeal at the end of 2023, a month after Democrats secured control of both chambers of the General Assembly. He urged lawmakers to work with him to eliminate the tax, but he did not propose a way to do it.
Del. Chad Green, R-York, was the only legislator to take up Youngkin’s challenge to end the tax last year, but was not surprised when a House subcommittee killed his bill after he acknowledged that it would cost the state general fund budget $2.5 billion to $3 billion a year.
“The localities would be compensated, but it would be a heavy lift,” he told the House Finance subcommittee. “I’m not going to sugarcoat it.”
Virginia’s budget already provides $950 million a year to reimburse localities for partial repeal of the car tax. In 2002, in a souring economy, the General Assembly, then controlled by Republicans, capped the reimbursement at 70% of a vehicle’s assessed value.
Joe Flores, director of fiscal policy at the municipal league, said, “Replacing those lost revenues if the car tax is repealed will require a major investment from the commonwealth — roughly 10% of the state’s annual operating budget — at a time when general fund revenues are likely to be in short supply.”
“To be clear, VML staff have not spoken to the campaign about this proposal, but we’re happy to do so, to better understand the specifics of the initiative and the commitments being made,” said Flores, a former secretary of finance under then-Gov. Ralph Northam.
Youngkin tried again this year with a budget proposal to use $1 billion in surplus revenues to create a fund for providing income tax credits to some, but not all, Virginians who pay the local tax over a three-year period.
The proposal would not have spared anyone from paying the full tax levied in their locality. It would have provided $150 in income tax rebates to individual tax filers who earn $50,000 or less a year and $300 to couples filing jointly if they earned $100,000 a year or less. Taxpayers would have been eligible only if they lived in localities that had not raised the tax rate by more than the rate of inflation.
The proposal went nowhere with legislators on the assembly’s budget committees, who said it left out too many people for tax relief, including those who don’t own a vehicle. They chose instead to provide one-time income tax rebates of $200 for individuals and $400 for couples filing jointly.
“I want to do what is going to be the greatest amount of good for the greatest number of people,” Senate Finance Chair Louise Lucas, a Portsmouth Democrat, said the same day that Youngkin pitched his proposal in December.
Earle-Spears, speaking to campaign volunteers Tuesday, insisted, “We have the money.”
But she will have to overcome public uneasiness with the state of the economy, expressed both by plummeting consumer expectations and the first signs of a pullback in consumer spending that drives 70% of economic output.
“I think it’s a very good chance that whoever is elected is going to face a very different economy than what we’ve had the last four years,” said Bob Holsworth, a Richmond political analyst who has followed Virginia politics closely for more than 30 years.
Spanberger and Democrats are focusing on the threats to Virginia’s economy — and household incomes — from Trump’s aggressive and erratic tariff policies, and cuts to federal employment and spending, especially in Northern Virginia and Hampton Roads, which depend on both for fiscal stability.
Youngkin has acknowledged a potential threat to the state revenue forecast for the next fiscal year because of Trump’s policies on tariffs and federal spending. The governor cut $900 million in approved spending from the revised budget, most of it for capital projects at public universities and services under Medicaid, “as a cushion … against any risk to the forecast.”
Youngkin and Earle-Sears kept their distance from Trump and his Make America Great Again movement for a time.
Earle-Sears once worked to boost Black voters’ support for Trump as national chairwoman of Black Americans to Re-elect the President PAC. But in November 2022 she broke with the former president days after Republicans failed to make sweeping gains in the midterm congressional elections. She told Fox Business that it was time for the GOP to move on.
But Youngkin and Earle-Sears have embraced Trump since he took firm control of the national party on his way to regaining the White House last year.
“She and Youngkin have defended everything that Trump has done,” Holsworth said.
Still, calling again for repeal of the car tax makes sense politically, he said. “I think the car tax remains problematic for a lot of people.”
Holsworth noted that car tax rates have risen in many localities since the assembly capped the state reimbursement more than 20 years ago.
“It’s certainly an understandable political move to try to counter what is obviously a very bad environment for Republicans in Virginia right now,” he said.