This week, the Senate Finance Committee approved SB 392, Governor Morrisey’s proposed 10 percent personal income tax cut at a cost of $250 million in revenue annually, as well as their changes to the FY 2027 budget. Like the governor’s budget, the Senate balances their budget by relying heavily on one-time surplus and supplemental funding, notably funding the entirety of the $300 million Hope Scholarship through surplus and supplemental funding.
The budget process so far has revealed that West Virginia has a structural budget deficit that is worsening, as there has yet to be a budget draft presented that funds all of the state’s ongoing programs and services without relying on dwindling one-time funds; this begs the question: how is the state contemplating more tax cuts that will further exacerbate future budget deficits?
Like the state and federal tax cuts of the past decade, Governor Morrisey’s proposed 10 percent income tax cut delivers 65 percent of the tax cut benefits to the wealthiest 20 percent of households, while reducing desperately needed state revenues by an estimated $250 million per year. The typical household in West Virginia (those in the middle 20 percent of household income) would see an average tax cut of only $136 per year, or just over $2 per week. In contrast, the wealthiest 1 percent in West Virginia (those making more than $558,000 per year) would see an annual tax cut averaging $4,663.
Even before the 10 percent income tax cut was proposed, the state was already facing hundreds of millions in projected annual budget gaps according to the Governor’s Executive Budget report. With the initial five percent income tax cut that was included in the governor’s budget proposal, West Virginia was facing $1.2 billion in total budget gaps from FY 2028 to FY 2031. The additional five percent in income tax cuts more recently proposed pushes the total projected budget gaps to $1.7 billion from FY 2028 to FY 2031.
When the West Virginia Legislature passed its initial income tax cut in 2023, it included an automatic mechanism designed to incrementally reduce personal income tax rates if specific state revenue goals had been met. If General Revenue collections (minus the severance tax) exceed the inflation-adjusted 2019 baseline, an automatic rate reduction is enacted, capped at 10 percent in a single year. The trigger is intended to gradually reduce the state personal income tax if economic growth exceeds the benchmark.
It’s critical to note that the Senate Finance Committee approved a full 10 percent income tax cut despite revenues falling hundreds of millions of dollars short of meeting the benchmark. FY 2019 General Revenue collections, minus the severance tax, totaled $5.41 billion (adjusting for inflation). FY 2025 General Revenue collections, minus the severance tax, totaled $5.08 billion, $327 million short of meeting the benchmark for an income tax rate reduction. The official FY 2026 General Revenue collections estimate, minus the severance tax, is $4.93 billion, which would be $482 million short of meeting the benchmark. The revenue estimate for FY 2026 is below FY 2025’s actual collections, demonstrating that overall revenue is estimated to decline even before potential additional tax cuts are enacted.
With the 10 percent income tax cut, the Senate budget depends on hundreds of millions in surplus and supplemental funding to remain balanced. While the governor’s proposed budget used $170 million in surplus funding to pay for Medicaid, the Senate’s version instead uses $200 million in surplus funding plus an additional $100 million in supplementals to fund the entirety of the Hope Scholarship, which was largely funded through the General Revenue Fund in the governor’s proposed budget. No General Revenue funding is used for the Hope Scholarship in the Senate’s budget.
Even with just the initially proposed five percent income tax cut, the governor’s proposed budget relied heavily on using one-time surplus funding to remain balanced, setting the state up to face major budget gaps in the coming years. The Senate’s budget takes that same risky strategy and doubles down, funding the fastest growing program in the state budget entirely with one-time funding.
Depending on one-time funding for ongoing costs like the expansion of the Hope Scholarship in order to make room in the budget for tax cuts only spells trouble for future budgets, as evidenced by the growing future budget gaps. These tax cuts, which overwhelmingly favor the wealthy, undermine the state’s ability to invest in public services like public education and infrastructure that would actually improve prosperity for all of our people and make West Virginia more appealing for businesses and families alike.
