A recent analysis commissioned by Fairfax County revealed that taxpayers in Fairfax County on average contribute twice as much in taxes to the Commonwealth as they get back in state services, infrastructure funding, and grants.
One of the obvious reasons for this finding is that households in Fairfax are, on average, wealthier than an average Virginia household: the median household income in Fairfax is $150,000, whereas the state’s median household income is closer to $100,000. But this begs the question: do (relatively) wealthy people in Fairfax—and the rest of Virginia—pay their fair share in taxes?
It turns out that the answer depends on where in the Commonwealth they live. So, rather than assessing the progressivity of state income taxes (or the lack thereof), let us explore the differences in the level of taxes paid by different households in Virginia–while holding income constant.
How much do wealthy households pay in taxes in Virginia?
Let’s consider two households: a median-income (or ‘comfortable’) Virginia household and a ‘wealthy’ Virginia household. Let’s define a ‘comfortable’ household as a married couple, two dependents, with a gross income of $100,000 and a house valued at $500,000. As noted above, this level of household income is close to the median level for the state. In turn, let’s define the standard ‘wealthy’ household to have the same family composition, with a $200,000 gross income and a house valued at $1 million. As discussed further below, differences in the cost of living across the commonwealth means that households with the same income level may be considerably better-off or worse off in real terms in different parts of the commonwealth, even ignoring taxes.
Let’s specifically focus on just state income taxes and property taxes, as the main state tax and the main local tax in Virginia. For convenience, the analysis will ignore federal taxes, as well as other (more minor) state and local taxes.
As far as state income taxes, households with the same income levels are treated the same in Virginia (at least, in nominal terms). After accounting for its deduction and exemptions, a median-income (comfortable or non-poor) household earning $100,000 could expect to pay approximately 4,272 dollars in state income taxes, assuming they take the standard deduction. A wealthy household, with a $200,000 gross income could expect to pay approximately $10,022 in state income taxes under the same assumptions.
Whereas the amount of state income tax is the same everywhere—given the same income levels—the amount of property taxes that Virginia households pay varies wildly in different localities. Given the same property value, different households—even with the same income level—will contribute a lot more or a lot less in property taxes, depending on where they choose to live in Virginia.
In Fairfax County, a ‘comfortable’ median-income family with a house valued at $500,000 will pay 5,475 dollars in property taxes, whereas a ‘wealthy’ family (owning a million-dollar home) would have to pay 10,950 dollars in property taxes. That means their total tax bills are 9,747 and 20,972, respectively, when their state income tax and property tax payments are combined.
If the same two families were to live in Amelia County, with the same incomes and the same home values, however, these two families contribute considerably less: a total tax bill of 6,172 dollars for the ‘comfortable’ family and 13,822 dollars for the ‘wealthy’ family. That’s more than a 50% difference in the actual (state and local) tax contribution for a family with the same income and same housing expenditure!
Incidentally, even though there are strong regional patterns, this is not a NoVA-versus-the-rest-of-Virginia issue. Taxpayers in Roanoke, Richmond, Petersburg, and Norfolk all pay more as well. In Petersburg, Virginia, the same two families would contribute even more than in Fairfax: their tax payments would be 10,622 and 22,722 dollars, respectively.
Those taxpayers who are paying more are contributing more to the wellbeing of their neighbors, both in their own community, as well as for the rest of the commonwealth. But what about the higher-income families in the lower-taxed part of the state? It doesn’t really feel like they are contributing equally to the commonwealth—because they are not.
What is the fiscal impact?
Although there may be a perception that certain parts of the state are uniformly ‘rich’ while others are ‘poor’, and while it is true that higher-income households tend to be concentrated in Northern Virginia, in reality, there are poor families that live in richer localities, while there are rich families that live in poorer parts of the commonwealth.
In fact, while 44 percent of all households with incomes exceeding $100,000 per year live in NoVA, more than half (56 percent) of all households with above-average (or technically: above-median) household incomes live in the rest of Virginia. As a result, the fiscal impact of wealthy households underpaying state and local taxes compared to equally-wealthy households elsewhere in the commonwealth has a major negative impact on the fiscal condition of the commonwealth.
Although the exact fiscal impact of any tax reform would depend on the exact nature of the reform, putting in place a more uniform local property tax rate (for instance, by imposing a minimum property tax rate of, say, 1 dollar of tax per 100 dollars of real property–so that wealthy households contribute more evenly to the needs of their local communities across the commonwealth–could yield as much as 1.6 billion in revenue per year. In principle, this could result in either an increase in total public sector spending in Virginia, or would reduce by an equal amount the need for intergovernmental fiscal transfers from the commonwealth budget (i.e., a cost savings for the 1.6 billion). Even though wealthier households tend to be a small proportion of the population in many localities, these wealthier households tend to generate a disproportionate share of all income and own a disproportionate share of all taxable property. If the fiscal incidence of property tax revenues is proportionate to income, over 1 billion of this fiscal impact would be borne by households with incomes over $100,000.
These nominal variations are an underestimate of the real contribution gaps
In reality, the real gaps in tax contributions are actually bigger in real life as a result of the major cost-of-living differences in the Commonwealth: in Arlington or Fairfax, $600,000 does not buy much of house these days. At the same time, this amount—quite literally—buys you a mansion in some other parts of the state.
Major differences in the cost of living in Virginia mean that two taxpayers with the same nominal income may have completely different levels of real income, simply by living in different parts of the state. Having a median income that is 50 percent above the state average means a lot less if the cost of living is 45 percent higher than the state average at the same time.
It also means that local governments in different parts of the commonwealth have vastly different expenditure needs, as teacher salaries in high-cost parts of the commonwealth ought to be considerably higher in nominal terms than in lower-cost parts of the state to ensure that teachers get paid fairly.
As it turns out, the places where property taxes are generally low also tend to be the same places where the cost-of-living and housing prices are relatively low. This means that in reality, households in higher-cost localities (with higher real estate prices) typically end up paying more in real estate taxes, even when income levels and tax rates are the same. The divergence in tax contribution between different places in the commonwealth is even bigger when comparing real household incomes.
This pattern becomes even more problematic given a serious bias in Virginia’s intergovernmental grant system that systematically under-compensates high-cost localities for their higher cost-of-living. In fact, an earlier estimates suggests that Fairfax County is underfunded by the education funding formula in excess of 400 million per year, while NoVA as a whole is underfunded by roughly 800 million. This amount of underfunding is far from trivial: for Fairfax County families, this represents roughly 1000 dollars per year.
Lower local tax rates in parts of the commonwealth are enabled by the redistribution of intergovernmental revenues
In line with public finance theory, one could try to justify the lower taxation in low-tax localities by arguing that these localities have chosen a lower level of local public services as well (and therefore, that decentralization improves allocative efficiency). In practice, however, low-tax jurisdictions in Virginia aren’t necessarily proportionately worse off in terms of their basket of public services, because (a) local road infrastructure is already paid for by the commonwealth–rather than the local community–in Virginia, and (b) they receive considerable intergovernmental revenues from the commonwealth to ensure reasonable public services. As a result, low-tax localities are able to keep their local taxes low because of the redistribution of state and federal grants.
For instance, while imposing the lowest local property tax rate in the Commonwealth, and without being faced with the high levels of cost-of-living commonly associated with urban areas, Amelia County receives more than half of its budget from the commonwealth budget in the form of intergovernmental transfers. Even Chesterfield County–not a poor county by any stretch–receives half of its funding from intergovernmental revenues. A number of counties–including Wise, Carroll, Appomattox, Halifax, Henry, and Lunenburg–even receive more than 70 percent of their funding from state and federal authorities.
What this means in practice: because Amelia County—and others like it—receive disproportionately high intergovernmental revenues–both in relative and per capita terms–from the state (especially through the education funding formula), they are able to keep local property taxes low and still meet the (unacceptably low) minimum educational standards set by the commonwealth.
Who are the winners and losers?
Undoubtedly, the higher level of intergovernmental revenue received by Amelia County—and more broadly, by other low-tax localities, especially in Southside and Southwest Virginia—is driven by the fact that average household incomes in these localities are relatively lower and the poverty rate is generally higher. But this doesn’t take away the fact that non-poor (comfortable and wealthy) families in these parts of the state actually contribute less to the public services used by their less well-to-do neighbors than Virginians who live in Northern of Eastern Virginia.
As such, the most obvious ‘winners’ of the low local property taxes and higher grants in these low-tax localities are the higher-income property owners, who pay substantially less in local property taxes. In turn, the main losers of the current situation are the providers and recipients of public services in these communities—such as public education—especially the less well-to-do families that rely disproportionately local public services.
In addition, however, because the intergovernmental transfer system systematically favors these low-tax, low-cost localities, taxpayers in higher-cost localities are generally forced to pay higher property tax rates, since the state grant formula does not compensate their local governments adequately for their higher needs. The net result: wealthy and non-wealthy taxpayers in high-cost parts of the commonwealth also pay more, so that wealthy taxpayers in the low-tax parts of the commonwealth can pay less in local taxes.
Why does this require policy action?
Taken together, these findings reveal a tax and grant structure that does more than simply raise revenue. It shapes where people live, how communities grow, and who ultimately bears the responsibility for funding Virginia’s public services. What appears–on the surface—to be a simple difference in local tax rates is, in practice, a system of incentives and disincentives that works unevenly across the Commonwealth—and, in many cases, against the interests of both taxpayers and local communities.
First, at its core, this is a question of fairness—though not in the simplistic sense of “rich versus poor.” The real inequity lies in how two households with similar incomes and similar assets can face dramatically different tax burdens depending solely on where they live in Virginia. In Northern Virginia or other urban localities, both higher-income and lower-income households pay more, not only to fund their own local services, but—because grant formulas underestimate their needs—effectively to subsidize jurisdictions that maintain very low property tax rates. Meanwhile, wealthy families in low-tax localities are effectively insulated from contributing proportionately to the ’common weal’, despite benefiting from substantial inflows of intergovernmental revenue. That dynamic violates the Commonwealth’s implicit promise that Virginians should all be treated on equal footing—no matter their ZIP code.
Second, the current tax structure also encourages behavior that runs counter to Virginia’s long-term interests. When high-income households can significantly reduce their tax bills by relocating to lower-tax counties, the state unintentionally fuels residential sprawl, pulling economic activity and purchasing power away from the regions that anchor Virginia’s economic competitiveness. People should be free to choose where they want to live—but they should not feel compelled to move simply to escape an inequitable tax structure.
Third, it should be recognized that the harm is not merely residential: businesses in high-cost, high-productivity regions face the compounded burden of local tax rates that are elevated precisely because the state underfunds these communities. In an increasingly competitive national and global economy, that is not a trivial policy flaw—it is a strategic disadvantage.
Ultimately, the Commonwealth’s tax and intergovernmental financing system is sending contradictory signals. Productivity is punished. Sprawl is rewarded. High-need localities are systematically shortchanged. And wealthy households in low-tax areas receive effective tax discounts that their peers in other regions never see. This is not the inevitable outcome of economic geography; it is a policy choice.
Recognizing this reality is the first step toward designing a tax and grant system that is transparent, equitable, and aligned with Virginia’s long-term economic and social wellbeing. If Virginia wants to strengthen its public services, support thriving communities across all regions, and ensure that taxpayers are treated fairly, the Commonwealth cannot afford to ignore these structural imbalances. The goal is not to raise taxes indiscriminately, nor to pit regions against one another—but to ensure that the incentives built into the Commonwealth’s public finance systems serve the needs of all Virginians, rather than distort them.
Note: The Feature Image reflects two actual Virginia properties, currently for sale for $600,000. The projected total tax payment reflects a household income of $150,000 and relies on the actual real estate tax rates applied in Lunenberg and Arlington Counties, respectively.
