Tax War Heats Up — Virginia Goes ROGUE

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Virginia Democrats are pushing legislation that could skyrocket the state’s income tax rate to 13.8 percent—surpassing even California—while neighboring states slash their rates to attract businesses and families.

Story Snapshot

Two Democratic bills could combine to create a 13.8% top tax rate by 2027, exceeding California’s 13.3%
HB 979 proposes new brackets at 8% and 10% for earners above $600,000, while HB 378 adds a 3.8% tax on investment income
Virginia’s neighbors have been cutting rates for years—North Carolina now at 3.99%, Tennessee at 0%
High earners and businesses face new incentives to relocate as Virginia moves opposite the national trend

Democrats Push Dramatic Tax Increases on High Earners

Virginia Democrats introduced two bills in early 2026 that would fundamentally reshape the state’s tax landscape. HB 979, sponsored by House Finance Committee Chair Vivian Watts, creates new income tax brackets of 8 percent for income between $600,000 and $1 million, and 10 percent for income exceeding $1 million. Separately, Delegate Elizabeth Bennett-Parker’s HB 378 imposes a 3.8 percent tax on net investment income above $500,000, mirroring the federal Net Investment Income Tax. Combined, these measures could push Virginia’s top rate to 13.8 percent by January 2027, affecting dividends, capital gains, interest, and business income.

WHAT HAPPENED TO AFFORDABILITY? Tax Rate in Virginia Poised to Become Highest in the Nation After Democrats Take Over | The Gateway Pundit | by Mike LaChance https://t.co/xrSGkbbzE6

— Craig S. (@s1058471) January 24, 2026

Virginia Abandons Regional Tax Competition

While Virginia lawmakers propose dramatic increases, neighboring states have spent the past decade slashing rates to attract residents and businesses. North Carolina reduced its top rate from 5.8 percent in 2015 to 3.99 percent today, with plans to drop to 2.49 percent. Tennessee eliminated its income tax entirely, while West Virginia cut rates to 4.82 percent and Kentucky to 3.5 percent. Georgia is phasing out its income tax, and Oklahoma recently reduced its rate to 4.5 percent. Virginia’s current 5.75 percent top rate already exceeds most regional competitors, and the proposed increases would reverse decades of the state’s reputation for fiscal restraint.

Economic Consequences for Families and Jobs

Tax analysts warn that the proposed hikes would place Virginia at a severe disadvantage in attracting and retaining high-income taxpayers and businesses. Earners deriving most income from investments or business profits would face effective rates approaching California levels, but without California’s established industries or climate. The 3.8 percent investment tax alone would push passive income taxation to 9.55 percent when combined with the existing 5.75 percent rate. Lobbyists predict a “flood” of out-migration to states like Florida, Tennessee, and North Carolina. This exodus would drain job creators and investment capital from Virginia communities, worsening affordability problems the state already faces with high living costs.

Unified Democratic Control Enables Tax Agenda

Democrats gained full control of Virginia’s legislature in the 2025 elections, empowering them to pursue revenue increases without Republican support. Americans for Tax Reform identifies these income tax bills as part of an “array of new taxes” Democrats are advancing, including sales tax increases under HB 900. The bills remain pending in the General Assembly as of late January 2026, with no votes or hearings reported yet. However, lobbyists consider Watts’ HB 979 to have an “excellent chance” of passage given her influential position and the party’s unified control. This approach contrasts sharply with red states pursuing tax elimination and blue states like Georgia surprisingly joining the tax-cutting trend.

Virginia’s move toward higher taxation reflects a broader ideological divide between states pursuing limited government and those expanding spending through increased revenue. The state already ranks below average in tax competitiveness according to Tax Foundation data, collecting $6,845 per capita in state and local taxes in 2022. Adding these new burdens would further erode Virginia’s ability to compete economically, particularly as federal employment downsizing hits the Northern Virginia economy. Families struggling with inflation and high costs now face the prospect of state government compounding their affordability crisis rather than providing relief.