What Does Republican Glenn Youngkin’s Victory Mean for Virginia’s Economy?

Virginia’s 2021 gubernatorial election saw Republican Glenn Youngkin defeat Democrat Terry McAuliffe in a state that President Biden won by 10 percentage points, a worrying sign for Democrats down the road. Republicans also managed to secure a majority in the state’s House of Delegates, which will ensure Youngkin has an easier time passing his policy proposals through the legislature, although the state Senate is still under Democratic control. Youngkin’s economic policies stand in stark contrast with those of the Democratic state government’s over the past few years and will carry serious implications for Virginians. 

What has been Virginia’s economic direction under Democratic control?

Given the COVID-19 pandemic’s universal negative effects, Virginia’s economy has fared relatively well under Democratic Governor Ralph Northam and the Democratic-controlled legislature, albeit with longstanding issues of inequality. Unemployment in the state, 3.8 percent as of September, has consistently remained below the national average and real GDP has recovered from its 2020 slump, exceeding pre-pandemic levels​​ (governor.virginia.gov). With an increase in the state’s minimum wage and legislation permitting local governments to negotiate collective bargaining agreements with public sector workers, Virginia went from the “worst state for workers” in 2018 and 2019 to 23rd in 2021 (Schweitzer, 2021). Additionally, the state’s AAA bond rating, record breaking $2.6 billion budget surplus in fiscal year 2021, and rank for top state for business in 2021 are worthy of praise (Schneider, 2021). Inequality remains an issue, however, given that the gains from the state’s economic growth have not been realized by everyone in the state, most notably in rural areas south of the wealthier northern cities and suburbs (Editorial, 2021). Virginia also remains a “right to work” state, weakening the ability of unions to help employees negotiate higher wages and better benefits and working conditions (Gould & Kimball, 2015).

Where Does Youngkin Stand on Economic Issues?

Youngkin, with a business background as a former chief executive of Carlyle, believes in standard Republican economic policies. His proposals involve using federal dollars and some of the state’s temporary surplus money for new spending measures and large tax cuts ‒ including eliminating the grocery tax, suspending a gas tax increase, and rebates for individual taxpayers and couples (Johnson, 2021). Many of his fiscal proposals come from the ideas of Stephen Moore, an advisor who in 2013 helped shape big tax cuts in Kansas which led to poor economic performance and a budgetary crisis (Schweitzer, 2021). One of Youngkin’s most controversial positions is reducing the state’s individual income tax; after walking back previous comments where he proposed eliminating it entirely, he now proposes doubling the standard deduction rate (Schweitzer, 2021). While promising to create 400,000 new green jobs, Youngkin opposed a recent state law, the Virginia Clean Economy Act, on the grounds that it was too costly and would jeopardize the energy grid; however, he is unlikely to be able to overturn it due to the Democratic control of state Senate and his limited control over the political bodies overseeing its implementation (Schneider, 2021; Bruggers, 2021). The law is projected to boost economic growth by creating 29,500 direct solar jobs and 17,000 indirect jobs, $4.3 billion in investment over the next decade, and over $1 billion in federal, state, and local tax revenues (seia.org).

How Will Governor-Elect Youngkin Affect Virginia’s Economy?  

Cutting the individual income tax rate would have disastrous repercussions for inequality and long term growth in Virginia. The individual income tax makes up 72 percent of revenues and the state would lose roughly $1.2 billion in the first year of the policy taking effect and $875 million per year afterward as a result of Youngkin’s policy (Fiske, 2021). Given the state’s constitutional requirement to balance the budget, a fall in tax revenue would require significant expenditure cuts in later years. Despite Youngkin’s promises to increase education spending, the proposed tax cut would result in defunding Virginia’s public schools, due to over a third of education funding coming from the state, and hurting lower income communities, including in Republican constituencies, who often must rely on public education (roanoke.com). Empirical evidence shows the economic gains to investment in education. A 10 percent increase in per-pupil spending each year for all twelve years of public school leads to 0.27 more completed years of education per person. This in turn would induce a 7.25 percent wage increase, and a 3.67 percentage-point reduction in the annual incidence of adult poverty; these outcomes are also stronger for children from low-income families (Jackson et al., 2015). 

While some of Youngkin’s proposed spending and tax cuts are beneficial, such as eliminating the grocery tax which worsens income and racial inequalities, cutting the income tax is hard to justify given Virginia’s solid economy, its tax burden falling in the middle of the spectrum compared to other US states, and the growing evidence showing that cutting taxes does not improve state economic performance (Figueroa & Legendre, 2020; Schweitzer, 2021; Mazerov, 2018). Additionally, US aggregate demand is strong and, given current worries about inflation that disproportionately hurts the poor, it makes little sense to pursue such a widespread tax cut that only exacerbates this inequality. While Democrats should not be let off the hook for the state’s current income and wealth inequality, Youngkin’s economic plans do more harm than good for low income Virginians being left behind in the wake of the state’s growth. 

It’s difficult to say how much legislation Youngkin will be able to pass given that the Democrats still have control of the state Senate for at least the next two years. Although Youngkin’s victory means that we will likely see short term economic growth  ‒ driven mainly by the national economy ‒ inequality in the state may worsen, ultimately hampering growth in the long run. The governor-elect may not be able to change some aspects of the state’s economy, such as a growth in green jobs, but his election represents a change in economic direction from the past two years of complete Democratic control. 

Edited by Stephen Adams

Works Cited

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Cohn, S. (2021, July 13). Virginia is back as America’s Top State for Business in 2021. CNBC. https://www.cnbc.com/2021/07/13/virginia-is-back-as-americas-top-state-for-business.html

Editorial: Youngkin’s economic plan is pretty disappointing. (2021, August 4). Roanoke Times. https://roanoke.com/opinion/editorial/editorial-youngkins-economic-plan-is-pretty-disappointing/article_5b82317e-f3aa-11eb-901f-7378f2c3f656.html

Figueroa, E., & Legendre, J. (2020, April 1). States That Still Impose Sales Taxes on Groceries Should Consider Reducing or Eliminating Them. Center on Budget and Policy Priorities. https://www.cbpp.org/research/state-budget-and-tax/states-that-still-impose-sales-taxes-on-groceries-should-consider

Fiske, W. (2021, October 29). PolitiFact—McAuliffe, Youngkin swap bogus tax and spending claims. Politifact. https://www.politifact.com/article/2021/oct/29/mcauliffe-youngkin-swap-bogus-tax-and-spending-cla/

Gould, E., & Kimball, W. (2015, April 22). “Right-to-Work” States Still Have Lower Wages. Economic Policy Institute. https://www.epi.org/publication/right-to-work-states-have-lower-wages/

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New Study Shows Virginia Clean Economy Act Could Create 29,500 Local Solar Jobs. (2020, January 27). SEIA. https://www.seia.org/news/new-study-shows-virginia-clean-economy-act-could-create-29500-local-solar-jobs

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