This story was reported and written by VPM News.
Gov. Glenn Youngkin wants to eliminate taxes on tips, he said Monday at McLean’s Restaurant in Richmond.
The proposal is the first of what the Republican governor said would be “a broad range of tax relief” in amendments he’ll propose to Virginia’s two-year budget on Wednesday. Top Democrats in the General Assembly expressed an openness to the plan but said they’d look at the specifics while voicing concern over how new policies from the incoming Trump administration might affect Virginia.
The tips proposal would cost $70 million and benefit about 250,000 Virginians, the governor’s office said in a press release. It would apply to both cash tips and tips paid electronically. Eligible workers in the hospitality, food and personal service industries would claim it through a deduction on their state tax returns.
It’s unclear if this would apply to self-employed contractors who do food delivery or ride shares and receive tips.
After the announcement, Youngkin and several Republican lawmakers — including Lt. Gov. Winsome Earle-Sears, the current frontrunner for the GOP’s gubernatorial nomination — donned aprons and waited tables.
While they slung eggs and topped off mugs of coffee, State Sen. Mark Obenshain (R–Rockingham) stood on the sidelines.
“This should be a bipartisan initiative. It was on the national scene last year. It was supported by both major party candidates for president of the United States,” said Obenshain, who is carrying the tax cut legislation. “I see no reason why it shouldn't be supported by Republicans and Democrats in Richmond.”
Sen. Ryan McDougle (R–Gloucester) is co-patron of the one-sentence bill; Del. W. Chad Green (R–Gloucester) is carrying the measure in the House.
Vice President Kamala Harris supported a version of the policy while running in the November election. But Virginia Democrats shot down some of Youngkin’s tax cut proposals during this year's General Assembly session, wary of long-term changes to revenue.
“Any idea that's going to put money back into the pockets of hard work of Virginians, we're going to strongly consider and take a look at it,” House Speaker Don Scott (D–Portsmouth) said Monday afternoon at a press conference on upcoming maternal health legislation. “Every day, he drops something new that's shoot first, aim later. We just want to make sure that we're not just doing things for the front page of the paper, but we're doing things that are responsible.”
Economist and former Del. Sally Hudson, a Democrat from Charlottesville, was skeptical of the proposal.
“It's the kind of thing that sounds like a great idea, and then starts to raise a lot of questions once you dig in on the details,” Hudson said in a phone interview Monday afternoon.
She said proposals that tax different incomes at different rates can lead to loopholes for people who can hire the “fanciest” tax attorneys.
“You might have a lot of people who are nothing like the restaurant worker living paycheck to paycheck, playing with their accounting ledger and qualifying for a tips deduction that was very much not intended for them,” Hudson said.
Del. Wendell Walker (R–Lynchburg) pointed to tax relief when asked about the possible compensation shift from wages to tips.
“As far as guardrails, what we need to do is be mindful of what our constituents are telling us out here," he said. "We need help, and so this is just one way of eliminating some of that tax burden that people have to deal with here, and this is what spurs economy.”
Megan Davis, tax and budget policy analyst at The Commonwealth Institute for Fiscal Analysis, noted the average yearly salary for Virginia wait staff — about $37,580 — is roughly $5,500 greater than the yearly average salary for childcare workers.
“The server would benefit from this proposal, which would be great, but the childcare worker wouldn’t,” Davis said. “It kind of prioritizes some workers over others without a clear rationale.”
Both Hudson and Davis pointed to the earned income tax credit as an existing framework to supplement incomes for low-earning Virginians — one that could be adjusted to meet the governor’s goals of reducing the cost of living.
“Democrats in the General Assembly have, year after year, carried legislation to make that credit not just more generous, but also refundable,” Hudson said. “So, it would apply to workers who don't even make enough money to qualify for state income tax, which would include a lot of the people that I think the governor is trying to target with this tax on tips.”
“Virginians are overtaxed,” Youngkin told reporters, still wearing an apron after flipping pancakes. “We can fund all of our critical priorities at record levels and provide substantial tax relief.”
Virginia’s year-to-date revenues were ahead of projections by $400 million in October. Virginia’s two-year budget has fiscal years that begin in July. The budget amendments Youngkin is proposing would likely only apply to the 2026 fiscal year, which begins July 1 — though the tax deduction on tips would be permanent if passed into state law.
Last year, a budget showdown over taxes was resolved after unexpected revenue funded additional spending proposed by Democrats, rather than a tax hike on digital goods that Youngkin opposed.
Other Youngkin tax proposals have been stymied by Democrats in the General Assembly, including an income tax cut proposal that critics said would have saved wealthier Virginians more than less affluent residents.
Since Youngkin has come into office, he has overseen $5 billion in tax relief — including $1.3 billion in tax rebates and $1.3 billion in cuts from raising the standard deduction.
Other recent Youngkin budget proposals
Hudson said she was encouraged by other recent Youngkin proposals, including one that would increase school construction funding by about $290 million.
“That's great news. Our schools need it,” Hudson said. “But the problem is that our state auditors have put the total price tag of catching up on school construction at about $25 billion.”
Hudson said legislators should “right size” the investment to better fit the need.
Youngkin’s proposal sets aside a total of $517 million in direct support for schools, including the construction funding, $110 million for English language learner programs and $25 million for new lab school partnerships with HBCUs.
State Democrats are proposing some Medicaid-related amendments, including expanding coverage for diapers and limited baby supplies, increasing funding for early childhood education and increasing reimbursement rates for dental coverage through the public healthcare program.
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