Historic and present-day injustices, both in public policy and in society more broadly, have resulted in vast disparities in income across race and ethnicity in West Virginia. And West Virginia’s upside down tax system does little to address those disparities. The average income of white families is 53.7 percent higher than that of Black families in West Virginia. After state and local taxes are applied, the gap between white and Black average income is nearly unchanged at 53.6 percent.
While it would be unrealistic to expect state and local taxes to remedy income disparities across race and ethnicity, West Virginia’s tax system fails to make even a meaningful attempt to address this issue and recent proposals to eliminate the income tax and replace it with a higher sales tax would exacerbate the problem even further.
As we’ve covered before, different taxes have different impacts by income group. West Virginia’s income tax, with its tiered, progressive rates, is the state’s fairest tax — higher-income residents pay a larger share of their income in personal income taxes compared to low- and middle-income residents. In contrast, the state’s sales tax is regressive. Since low- and middle-income West Virginians spend a higher percentage of their overall income, and save less, the sales tax falls most heavily onto them.
And because Black West Virginians on average have lower incomes than white West Virginians — again, as a result of myriad historical and current inequities that disadvantage Black people — the state tax system has different impacts by race, as well. The state’s sales tax actually worsens disparities in income by race and ethnicity in West Virginia. Black households in West Virginia pay an average effective sales and excise tax rate of 3.7 percent, 23 percent higher than the rate paid by the average white household (3.0 percent).
In contrast, the state’s income tax slightly narrows the income gap by race and ethnicity, but not to the extent needed to begin meaningfully addressing racial income disparities. Because white families have higher average incomes, and since the income tax is progressive, their average combined income tax payment (at 3.8 percent of income) is higher than that paid by Black families (at 3.2 percent of income).
This brings us to recent proposals in West Virginia to eliminate the income tax and replace it with higher sales taxes. As our recent blog post shows, only the wealthiest West Virginians in the state would realize a net tax cut from such a plan, while a majority of the state would experience an overall tax increase. And notably, the small share of West Virginians who would receive a tax cut are overwhelmingly white. 96 percent of the state’s top earners (defined as the top 20 percent of earners) — the group receiving the bulk of the tax cuts — are white. Just 7 percent of Black households are in this high-income group.
In contrast, Black households are overrepresented in low- and middle-income households. 81 percent of Black households in West Virginia earn less than $48,100 while just 58 percent of white households earn below this level.
Accordingly, a proposal like the one outlined here that raises taxes on the bottom 60 percent of households in order to give a tax cut to the top 40 percent would effectively lead to a net tax increase on 81 percent of Black households in West Virginia. Only 19 percent of Black households would see a net tax cut.
Addressing disparities in income by race and ethnicity in a meaningful way would require shifting toward a more progressive taxation system with higher tax rates on affluent residents and comparatively less reliance on the tax dollars paid by lower- and middle-income families. Current proposals to eliminate the income tax and raise the sales tax would move West Virginia in the opposite direction and contribute to furthering the already severe systemic racial inequities in the state.