Virginia bill would raise state income tax rate to 10% for households making over $1 million

Delegate Kelly Convirs-Fowler (D-Virginia Beach) has introduced a bill to increase state income taxes in Virginia, HB 188. Under her bill, the marginal tax rate would rise from 5.75% to 10% on people making over $1 million.

Virginia already has higher state income taxes than most of its neighbors. Kentucky has a maximum tax rate of 3.5%, North Carolina has a maximum tax rate of 3.99%, West Virginia has a maximum tax rate of 4.82%, while Virginia has a maximum tax rate of 5.75%. Tennessee has no state income tax. As a result, Virginia is now one of the higher-tax states both in terms of dollars paid, and tax burdens compared to other states.

That’s a big change from the recent past. In 2015, Virginia had lower state income tax rates than West Virginia, North Carolina, and Kentucky. Back then, the top marginal tax rate was 6.5% in West Virginia, 6% in Kentucky, and 5.8% in North Carolina, compared to 5.75% in Virginia. And the lowest tax rate (for low-income households) was 5.8% in North Carolina, 3% in West Virginia, and 2% in Kentucky, compared to 2% in Virginia (most taxpayers pay the top marginal tax rate in each state). But since then, Virginia’s neighbors have cut tax rates a lot, unlike Virginia.

Due to high taxes and high living costs in Virginia, people are moving from Virginia to West Virginia and states south of Virginia like North Carolina, Tennessee, and Florida. As James Bacon, the former publisher of Virginia Business, noted in 2024, “people moving to Virginia in 2021 came mainly from the northeast — New Jersey is at the top of the list — and they’re moving mainly to southern states.” States in the northeast often have even higher taxes than Virginia (such as New Jersey, New York, and Connecticut), while southern states have lower taxes (Florida, Texas, and Tennessee have no state income tax).

People are even moving from high-tax Virginia to southern states whose populations and economies are stagnant, such as West Virginia and Mississippi. As Bacon noted, “Perhaps most remarkable is the net migration of Virginians to Alabama, Mississippi, and West Virginia — states not on many peoples’ list of lands of economic opportunity.”

Raising marginal tax rates in Virginia to 10% could stifle the migration of people from Maryland into Virginia. Right now, more people move from Maryland to Virginia than from Virginia to Maryland, resulting a net migration of 2,550 people from Maryland to Virginia in 2021.

But a top marginal rate of 10% would leave rich people slightly worse off in Virginia than in Maryland. (In Maryland, the top marginal tax rate is 6.5% at the state level, plus up to 3.2% at the county level in those counties with the highest county income rates — resulting in a maximum marginal rate rate of 9.7% in the highest-tax Maryland counties).

So rich people would stop moving to Virginia, making Virginia poorer and cutting its income tax revenue.

Some people move to Virginia from Maryland because taxes are lower for them in Virginia. I grew up in Maryland, but moved to Virginia back when taxes were clearly lower for me in Virginia. I had a neighbor who also came from Maryland. He appreciated that taxes were lower in Virginia than Maryland’s Montgomery County, but expressed ambivalence about leaving Maryland behind, saying that people were “friendlier” in Maryland, that Montgomery County had “more character” and better landscapes than northern Virginia, and that much of northern Virginia was a “wasteland” of endless sprawl.

If the tax rates rise in Virginia, many people will leave for southern states like North Carolina and Tennessee, or West Virginia. And some like my former neighbor will move to Maryland or stay in Maryland rather than moving to Virginia.

When Maryland raised taxes on millionaires, many moved out of state, resulting in Maryland raising less revenue as a result. The Tax Foundation described the results:

The Comptroller of Maryland has reported that the number of “millionaire” returns tumbled sharply between 2007 and 2008, a 30% drop in filers and 22% drop in declared income. Rather than income taxes from this group rising by $106 million, they fell by $257 million….One-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008. Some died, but the others presumably changed their state of residence….A Bank of America Merrill Lynch analysis of federal tax return data on people who migrated from one state to another found that Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states.