With the end of West Virginia’s 2023 fiscal year on June 30 came bold declarations about the strength of West Virginia’s economy and its historic revenue surplus. A deeper dive into the state’s tax receipts for the year reveals more of a mixed bag: strong tax receipts in the first half of the year slowing down drastically over the second half, the state’s big three revenue sources largely driven by factors beyond West Virginia’s control, and a glimpse of the harmful revenue impacts of sweeping income tax cuts.
The three largest sources of West Virginia’s $6.48 billion in general revenue in 2023 were the income tax, the consumer sales tax, and the severance tax. Together, they brought in more than 82 percent of the state’s total general revenue collections. Each of these critical revenue sources is impacted by the state of the overall U.S. economy and even global trends.
Severance tax receipts are the most obvious example—with high energy prices come higher severance tax revenue. Global crude oil prices increased by a staggering 350 percent between April 2020 and April 2022, the largest increase since the 1970s. This was largely attributed to the Russian invasion of Ukraine and its disruption of global energy markets. Those prices, and by extension, severance tax revenues on coal and natural gas were bolstered by global trends and are now settling back to more normal levels, such that June’s severance tax revenues were less than half of what they were in June 2022.
Income tax revenues follow broader economic trends as well. With record low unemployment rates and job growth, income tax receipts are higher. 2023’s sales tax revenues were pushed upward by inflation—sales tax receipts, which are a percentage of the total cost of a good, are higher when goods cost more. With inflation steadily declining and the Federal Reserve increasing interest rates, which is expected to push unemployment up, neither of these tax receipt levels should be expected to continue.
We’ve shown at length why comparing tax receipts against artificially suppressed revenue estimates is a flawed metric for assessing the state of our economy. While the state’s official revenue estimate for FY 2023 allowed the Governor’s administration and lawmakers to tout a $1.8 billion revenue surplus, total general revenue tax receipts of $6.48 billion were almost exactly in line with the expectations set by the department of revenue in their ‘unofficial revenue estimate’ of $6.4 billion.
A better metric for revenue analysis is comparing revenues with those of the previous year. When we compare FY 2023 with FY 2022, true revenue growth is $595 million. However, 90 percent of that revenue growth or true surplus was generated in the first six months of the fiscal year. Revenues were very clearly trending downward in the second half of the year, even before 2023’s income tax cuts were enacted and implemented. In June, the final month of the fiscal year, total revenues fell $80 million below June 2022’s total tax receipts, a significant month-over-month decline.
During the 2023 legislative session, lawmakers passed a significant tax cut package that will grow larger in coming years, reducing revenues that otherwise could have gone to public schools, infrastructure, higher education, volunteer fire departments, and other identified needs.
According to the fiscal note, the tax package cost $114.6 million in FY 2023, growing to $696 million in FY 2024 and $818 million in 2025. That cost will continue to grow annually, both due to inflation and automatic triggers that will divert all future revenue growth above the baseline to additional income tax cuts rather than budget needs.
Ultimately, the tax package seeks to fully eliminate the state’s progressive income tax, which up until now funded more than 40 percent of the state’s general revenue budget. As previously noted, income tax cuts overwhelmingly benefit the state’s wealthiest households, with one out of every six dollars in income tax cuts going to the top one percent of earners, and two-thirds going to the top 20 percent. On the other hand, foregone public services that this revenue could have paid for would have benefited all West Virginians.
Lawmakers and the governor have already foreshadowed their desire to see even more income tax cuts. But they simply cannot pass the kind of deep tax cuts they envision and still meet their obligations to the state’s residents and taxpayers. We are already seeing the results of austerity through flat budgets enacted to create the illusion of space for the initial tax cuts, and things could only grow worse from here as economic factors that drove strong revenues continue to subside just as tax cuts are fully implemented.
West Virginians deserve robust public services that serve us all- strong, well-funded schools, emergency responders that have the resources to come when we call, adequately funded higher education institutions, and quality infrastructure. Neglecting these needs to hand out tax cuts primarily to the wealthy will neither grow our population nor our economy.