Virginia’s Democratic-controlled legislature is poised to dramatically reshape the state’s tax landscape with two pending bills, HB 979 and HB 378. If enacted, these measures would combine to create a potential top income tax rate of 13.8% for high earners with significant investment income, a figure that would surpass California and make Virginia the state with the highest income tax rate in the nation. This aggressive move contradicts a regional trend of tax-cutting and is expected by tax analysts to accelerate the exodus of wealthy residents and businesses, raising alarms about the state’s long-term economic competitiveness.
Story Highlights
- Two Democratic bills could combine to create a 13.8% top tax rate on Virginia’s highest earners by 2027.
- HB 979 proposes new brackets at 8% and 10% for incomes over $600,000, while HB 378 adds a 3.8% investment income tax.
- The moves contradict regional trends where neighbors like North Carolina and Tennessee have slashed rates to attract businesses.
- Tax analysts warn the hikes will accelerate wealthy residents’ exodus to zero-tax states, undermining Virginia’s competitiveness.
Democrats Target High Earners With Dual Tax Increases
Virginia Democrats introduced two bills in early 2026 that would dramatically reshape the state’s tax landscape. HB 979, sponsored by House Finance Committee Chair Delegate Vivian Watts, creates new income brackets taxing earnings between $600,000 and $1 million at 8%, with a 10% rate kicking in above $1 million starting January 1, 2027. Separately, Delegate Elizabeth Bennett-Parker’s HB 378 imposes a 3.8% tax on net investment income exceeding $500,000, targeting dividends, capital gains, interest, and business income. Combined, these bills could push Virginia’s effective rate to 13.8% for top earners with significant investment income, eclipsing California’s current 13.3% top rate.
VIRGINIA DEMS AIM TO OUT-TAX CALIFORNIA
A new proposal would push the state’s income tax to a staggering 13.8%, potentially making Virginia the highest-taxed state in America. #WashingtonEye pic.twitter.com/UifNW8VixS
— Washington Eye (@washington_EY) January 24, 2026
Virginia Bucks National Tax-Cutting Trend
While Virginia Democrats advance tax hikes, neighboring states have slashed rates to attract businesses and residents. North Carolina cut its income tax from 5.8% in 2015 to 3.99% today, with plans to reduce further to 2.49%. Tennessee maintains zero income tax, while West Virginia dropped to 4.82% and Kentucky to 3.5%. Georgia is phasing out its income tax entirely, reducing to 5.09% in 2026. Seven states nationwide impose no income tax at all. Virginia’s current 5.75% top rate already ranks above average nationally, and these proposals move the Commonwealth sharply in the opposite direction from regional competitors at a time when tax competitiveness increasingly determines where wealth concentrates.
Affordability Crisis Deepens Despite Campaign Promises
The Democratic push comes as Virginia residents struggle with high living costs, making the “affordability” rhetoric from recent campaigns ring hollow. Virginia already ranks 20th nationally in per capita state and local tax collections at $6,845, according to 2022 data, with below-average tax competitiveness per Tax Foundation rankings. The proposed increases threaten to drive out the very taxpayers who fund state services, as high earners deriving substantial income from investments would face the 9.55% combined rate from HB 378 alone. Lobbyists predict a “flood” of out-migration if both bills pass, with wealthy individuals relocating to Florida, Tennessee, or North Carolina. This exodus would shrink the tax base, forcing future hikes on middle-class families to fill budget gaps.
Unified Democratic Control Enables Radical Agenda
Democrats’ takeover of the Virginia legislature in the 2025 elections handed them unified control to advance policies previously blocked by Republican opposition. Americans for Tax Reform notes Virginia Democrats are rolling out an “array of new taxes,” including HB 900’s sales tax increases, signaling a broader taxation agenda. The bills remain pending as of late January 2026, with no votes or hearings reported, but political observers give Watts’ HB 979 an “excellent chance” of passage given her committee chairmanship and Democratic majorities. If enacted, the measures would take effect in 2027, giving successful earners roughly one year to decide whether to stay or relocate. This aggressive timeline underscores Democrats’ confidence in pushing through tax increases despite warnings from fiscal conservatives about long-term economic damage and competitiveness concerns that threaten Virginia’s future prosperity.
Watch the report: Lawmakers offer differing plans to tackle affordability at Virginia Statehouse
Sources:
- Virginia State Tax Rate Could Rise From 5.75% to 13.8%, Highest In The Nation – Fairfax County Republican Committee
- Virginia’s Proposed Net Investment Income Tax – Marschall Tax
- Virginia State Tax: Income Tax Rates and Brackets – NerdWallet
- Democrats Pounce on Virginia Taxpayers – Americans for Tax Reform
