A new study by The Commonwealth Institute has found that there is no clear connection between the income tax rate and whether Virginians stay in the state or move elsewhere.
Republican Gov. Glenn Youngkin campaigned in 2021 on a promise of cutting taxes — which has long been a Republican platform. The governor has twice pitched income tax cuts during his term, first in 2022 and then again in 2023, amid a discussion about people moving out of Virginia, according to the report by the left-leaning Commonwealth Institute.
In December 2023, Youngkin said that tax cuts would help draw more people and more jobs to the commonwealth while dissuading Virginians from moving out of the state. That year, he had proposed a budget that would have cut state income taxes by 12% “across the board,” according to a report by the Associated Press.
But data for the year 2023, provided by the IRS and the American Community Survey, showed that there was no definitive correlation between migration to and from Virginia and the state’s income tax rate.
“We look at the data and we see people moving to and from Virginia from states with both higher and lower top income tax rates,” said Megan Davis, a tax and budget policy analyst at TCI. “We see that there’s been some proposals or faulty narratives about how taxes impact where we live, and used to justify harmful tax proposals that further favor the wealthy.”
TCI, or The Commonwealth Institute for Fiscal Analysis, is a Richmond-based nonprofit research and advocacy organization.
“TCI has long advocated for tax increases on Virginians and this study is just another vehicle for those efforts. Meanwhile, Governor Youngkin has driven $9 billion in tax relief to reduce the cost of living and keep Virginia affordable,” said Peter Finocchio, the governor’s spokesperson.
“He’s fought to keep taxes low on the businesses that have created hundreds of thousands of jobs and brought in $125 billion in private investment. His approach is drawing people to Virginia and away from the states have already adopted all the progressive left policies advocated for by the report’s authors,” Finocchio continued.
In 2022, Virginia’s top income tax rate was less than the national average and substantially less than several states, according to a Joint Legislative Audit and Review Commission report that focused on ways to make the state’s individual income tax more progressive.
That report, released in August 2024, identified 11 ways the General Assembly could adjust income tax — seven of those options would result in a decrease to the state’s revenue while reducing taxes on lower and middle-income filers. The remaining four options would offer an increase in the state’s revenue but would raise taxes on high or very high income taxpayers.
What did the report say?
TCI’s report found that there is not enough data to definitively say whether or not people move in or out of Virginia solely because of income tax rates.
Many other factors could influence why people move — including housing costs, proximity, differences in population size and characteristics, growth in specific industries, workforce development. Taxes are rarely considered a top reason in the limited research available on why people move.
“Without disentangling these and many more factors, migration data does not tell us much more than if people are moving, who is moving, and where they are moving to,” the report said.
TCI found that, in 2023, people left Virginia for states with both higher and lower income tax rates. Of the top ten states people left Virginia for that year, five had lower rates, four had higher rates and one had variable rates.
The report also found that people moved to Virginia in 2023 from states with both higher and lower rates. Of the top ten states people came to Virginia from, five had higher rates, three had lower rates, one had variable rates and one had comparable rates.
TCI noted that Virginia is a top destination to move to, with people coming from both higher and lower top income tax states, as well as a common state of origin, with people moving to states with a mix of higher and lower top income tax rates.
“Given that more people come to Virginia from lower-tax states, as well as leave Virginia for lower-tax states, the argument that people choose location based on top income tax rates is further muddied,” the report said.
Virginia’s tax rates have remained unchanged for 35 years
Virginia’s tax rate has not changed since 1990. It is currently on a step system with four different rates based on the taxpayer’s income:
- If a taxpayer makes less than $3,000 in taxable income, their tax rate is 2%;
- If a taxpayer makes between $3,001 and $5,000 in taxable income, their rate is 3% plus $60;
- If a taxpayer makes between $5,001 and $17,000 in taxable income, their rate is 5% plus $120; and
- If a taxpayer makes $17,001 or more in taxable income, their rate is 5.75% plus $720.
Most Virginia taxpayers now pay the highest rate, according to data from the state’s Department of Taxation.
“Unfortunately, top rate cuts disproportionately favor the wealthy in Virginia because our top income tax bracket is on annual taxable income over $17,000,” Davis said. “Whether you’re a teacher or a millionaire, you have income in that top tax bracket.”
Though Virginia’s tax rate hasn’t changed in 35 years, the state has more than doubled the standard deduction in that time frame. A standard deduction is a specific dollar amount that reduces the amount of a taxpayer’s taxable income.
The General Assembly voted to increase the standard deduction from $8,500 to $8,750 for individual filers and $17,000 to $17,500 for joint filers during the 2025 session.
What’s the deal with taxes, anyway?
Individual income tax made up about 67% of Virginia’s general fund revenues in fiscal year 2023, according to data compiled by the state Department of Taxation.
Money in the General Fund can be used for a variety of government programs and is up to the discretion of the General Assembly and the Governor. The majority of the general fund’s operating money goes toward education, health and human resources, general government, and public safety, according to the Virginia Department of Planning and Budget.
Davis noted Virginia’s income tax system is in need of reform.
“A fair share tax — a new income tax rate on annual taxable income over $1 million — could raise about $3 billion in the next two-year budget. This could be used to protect investments and make transformative investments in our communities,” she said. “But top rate cuts will go to the people who have more money in [the existing] top income tax bracket.”
