Today the grocery tax remains a major source of funding for education, transportation, and localities, according to the Institute on Taxation and Economic Policy, a total of $341 million in revenue that could be lost if the tax were abolished.
Gov. Ralph Northam (D) has proposed elimination of the 1.5 percent state portion of the tax; however the one percent portion going to localities would remain under his budget proposal. The budget proposed by the outgoing governor is under a two year cycle that must be reviewed and agreed upon by the General Assembly and enacted by the incoming governor.
Virginia now enjoys an unprecedented $2.6 billion surplus following record economic growth and federal subsidy under the American Rescue plan. The Northam budget adds $1.1 billion in the Revenue Stabilization fund, raising reserves to $3.8 Billion.
With the new Youngkin administration’s lofty goals to “restore excellence in education … rebuilding schools, raising teacher pay, and investing in special education,” Youngkin has not said what funds would be put toward those goals if the grocery tax source is eliminated.
Originally enacted in 1966, the University of Virginia attributes adoption of the two percent state-wide retail sales and use tax and one percent local option sales tax, to a “public mood change to a desire for significant progress in public services and specifically to public education.” The primary purpose of the tax was for upgrading public education. The first year’s revenue of $109.6 million had grown to $349.8 million five years later in 1972. Interest in public education remains high as evidenced in the recent Youngkin-McAuliffe race.
The grocery tax became a campaign issue in the 1973 campaign between incumbent Governor Mills E Godwin Jr., who had enacted the tax, and Democratic challenger Henry Howell, who was then the Lieutenant Governor. Godwin narrowly won election to his second term. Democratic Gov. Douglas Wilder (1990-1994) also ran on the populist message of “no new taxes” and sought to remove taxes on prescription drugs and groceries.
Such taxes are considered “regressive” meaning they have a greater impact on low income people than the wealthy. Because the tax is applied uniformly it has the effect of taking a greater percentage of income from low income earners than from high income earners; the average tax burden decreases with income.
Although 45 states have general sales taxes, only 13, including Virginia, still tax groceries; Virginia is one of ten that impose a lower rate on groceries than their general sales tax rate, according to the Center On Budget and Policy Priorities (April 2020).