RICHMOND, Va. (WRIC) — Governor Glenn Youngkin is proposing a tax break for small businesses across Virginia.

In a speech to state lawmakers earlier this month, Youngkin said his budget would help small businesses like mechanics, hair stylists and coffee shop owners by creating a 10 percent deduction for business income. He called it “a direct savings that small businesses will see right away.”

“My fundamental belief is that money is better spent by the businesses, and the business owners, than by the government,” Youngkin said.

More than 95% of Virginia employers are small businesses with 50 employees or less, according to Virginia Chamber Foundation Executive Director Keith Martin. This newly proposed tax relief would target this critical part of the state’s economy that would not benefit from Youngkin’s proposed corporate tax cut.

Del. Joe McNamara (R-Roanoke), who is also a small business owner, said savings will vary based on a number of factors but he expects employers will see the impacts in taxable year 2023 if the plan is approved.

“So if you have a small business and you pay yourself a salary and still have some money left after paying all of your bills, let’s say you make $50,000, for that single person, pass-through business it would be about $280 worth of tax savings,” McNamara said. “So not a tremendous amount of dollars, but certainly something that is very well needed and is going to be very much appreciated by businesses that are struggling.”

McNamara said eligibility rules will largely mirror federal definitions crafted under the tax reform package signed into law by former President Donald Trump in 2017. He said creating a 10% Qualified Business Income tax deduction for small businesses and pass-through entities at the state level would make Virginia a leader in this area.

“I can’t find another state that appears to have this,” McNamara said. “So I think it is really exciting.”

In 2020, more than 627,000 Virginia tax returns took the federal version of the QBI deduction and the majority of benefits went to high-income households, according Ashley C. Kenneth, President and CEO at The Commonwealth Institute (TCI).

Kenneth said TCI hasn’t taken a formal stance on the proposed tax break for small business.

The plan accounts for roughly $162 million of Youngkin’s $1 billion tax relief package, which will need to win approval in a politically divided General Assembly in the 2023 session.

It’s unclear how the effort will fare in the General Assembly. A spokesperson for Senate Democrats didn’t raise any explicit concerns when asked about the proposal on Wednesday.

Other components of Youngkin’s tax relief plan that are backed by the business community are certain to face push back from Democrats.

Julia Hammond, state director for the National Federation of Independent Business, said Youngkin’s push to increase the standard deduction and cut individual income tax rates would also benefit small businesses. She said many small employers pay business taxes through personal, rather than corporate filings.

“The hits and the squeezes usually come from the owner and their family. So this would allow them, in essence, to keep some of their hard-earned money,” Hammond said.

The debate comes as economic uncertainty is weighing on small business owners after a long pandemic recovery. Before unveiling his budget plan, Youngkin himself acknowledge that Virginia is expected to follow the national economy into a recession next year.

Guadalupe Ramírez Blevins, owner of AlterNatives Boutique in Richmond, fears people will tighten their pocketbooks and sales will drop.

“It’s tough to know and to predict what is going to come,” Blevins said.

Blevins said a tax break for small businesses seems like good news, but she wants to make sure it doesn’t take money away from underfunded schools.

“Tax breaks are good but…it’s nice for my taxes to go to teachers as well,” Blevins said.