Virginia Governor Kaine Proposes Income Tax Increase, First State Spending Cut

Lame duck Virginia Governor Tim Kaine (D) leaves office in a few weeks, turning things over to Republican Bob McDonnell. This year’s $37.8 billion budget is a slight increase from last year’s $37.0 billion and up even from 2007’s $35 billion budget, but Kaine argues that a tax increase is needed to keep up with proposals for spending growth.

(The Washington Post commends Kaine for “reducing budgets by $7 billion” but that seems to be a false assertion. Unless they mean Kaine proposed $13 billion in new spending but only did $6 billion in new spending, and therefore “reduced” spending by $7 billion.)

Yesterday, Kaine floated the idea of reducing $950 million in relief sent to local governments in return for their reducing the car tax, a lightning rod issue in Virginia politics. Today, Kaine suggests that would be coupled with raising income taxes by 1 percentage point and dedicating the money to local governments, beginning in 2011.

Kaine’s budget for 2011 would be $37.3 billion, a 1.3% reduction from this year, and for 2012 would be $37.8 billion, the same as this year. The budget numbers assume the state’s revenues rebound significantly in 2011 and 2012, although it’s unclear as to whether they account for the car tax/income tax change or not.