Blog Posts > How Do You Pay for a $2.1 Billion Tax Cut?
January 28, 2021

How Do You Pay for a $2.1 Billion Tax Cut?

Urge your legislators to protect revenues by taking action here.

We’ve covered Governor Justice’s and legislative leadership’s goal of eliminating the state’s personal income tax from several angles over the past few weeks, showing that states without income taxes aren’t growing any faster than states with the highest income taxes, that eliminating the income tax would overwhelmingly benefit the wealthy, and that replacing the income tax with higher sales taxes would likely be a net tax increase for all but the wealthiest West Virginians, while still blowing a huge hole in the budget, making major budget cuts unavoidable.

So just how major would those budget cuts have to be? In FY 2021, West Virginia’s income tax revenue is estimated to be $2.16 billion, or 43 percent of the state budget.

alt= Pie chart of the FY 2021 state budget revenue sources, showing that the income tax accounts for 43 percent of total revenue

As such, eliminating the income tax would require finding $2.16 billion, either through new taxes or budget cuts. One potential source of revenue is the sales tax. As we showed last week, raising the sales tax to over 10 percent would raise about $1 billion. However, doing so would actually be a net tax increase for 60 percent of West Virginians.

But let us assume that 60 percent of West Virginians are okay with paying more in overall taxes in order to give the wealthy a tax cut. That still leaves a $1.16 billion budget hole. So let’s go through the budget, start cutting, and see what we can come up with:

  • 10 percent cut to all executive branch departments, including the Governor’s Office, Auditor, Treasurer, Agriculture, Attorney General, and Secretary of State: $4.1 million
  • 10 percent cut to the Legislature: $2.5 million
  • 10 percent cut to the Supreme Court and court system: $13.5 million
  • 20 percent cut to the Department of Administration, which includes General Services and the Public Defender offices: $16.8 million
  • 20 percent cut to the Department of Commerce, including the Development Office, and the Divisions of Natural Resources, Forestry, Rehabilitation Services, and Tourism: $18 million
  • 20 percent cut to the Department of Environmental Protection: $1.3 million
  • 20 percent cut to the Department of Military Affairs and Public Safety, including Homeland Security, all correctional facilities, the State Police, and the Division of Juvenile Services: $89.4 million
  • Eliminate the Department of Veterans Assistance: $12 million
  • Eliminate the Department of Education and the Arts, including the Division of Culture and History, the Library Commission, public broadcasting, and all fairs and festivals: $26.3 million
  • From the State Board of Education, eliminate funding for safe schools, Governor’s Honors Academy, early literacy, and 21st Century learners and technology grants and programs: $25.6 million
  • 20 percent cut to remaining State Board of Education: $13.9 million
  • 20 percent cut to the Education Vocational Division, Aid for Exceptional Children, and School for the Deaf and Blind: $16.8 million
  • From the Division of Health, eliminate funding for state aid for local health services, the safe drinking water program, emergency medical services (EMS) support, early intervention, maternal health clinics, and Health Right free clinics: $33.6 million
  • 20 percent cut to the remaining Division of Health: $8.5 million
  • 20 percent cut to Social Services/foster care: $45.3 million
  • From the Division of Human Services, eliminate funding for child care development, family preservation, family resource networks, domestic violence legal services and prevention funds, in-home family education, and indigent burials: $11.9 million
  • 20 percent cut to the remaining Division of Human Services, except Medicaid/CHIP/TANF, but including the child welfare system, child support enforcement, and Child Protective Services (CPS) case workers: $23.2 million
  • 20 percent cut to the Consolidated Medical Services Fund, including substance abuse continuum care, behavioral health programs, and state hospitals and institutions: $44.9 million
  • Eliminate the PROMISE scholarship: $47 million
  • Eliminate the Higher Education and Higher Education Adult Part-Time Student (HEAPS) grant programs: $45.6 million
  • 20 percent cut to all community and technical colleges and the Council for Community and Technical College Education: $15.9 million
  • 30% cut to all colleges and universities and the Higher Education Policy Commission: $88.1 million

And even if you make all of those cuts listed and raise the sales tax to 10.3 percent (a net tax increase for 60 percent of West Virginians when paired with eliminating the income tax), you still need to find another $578 million in further cuts or additional tax increases.

Is that even possible? You could cut state funding for K-12 education by 20 percent, and get another $244 million, but that would likely violate the state constitution, while requiring major cuts to teacher salaries and Public Employees Insurance Agency benefits.

There are a handful of revenue options. Expanding the sales tax to include professional and personal services could get about $173 million, but this course of action isn’t without issues. Increasing the severance tax on natural gas and repealing recent cuts to the coal severance tax could bring in $75-$150 million, but that depends on energy prices and is a declining source of revenue. Legalizing and taxing marijuana could raise around $60 million. Not all of these options are popular, and would still have to be done along with all the budget cuts listed, as well as a 10 percent sales tax.

For the past 15 years, West Virginia has cut taxes, with little to show for it beyond less investment in education, public health, and infrastructure. Now, as the state has been rocked by a still ongoing pandemic and economic downturn, we are talking about repeating those mistakes instead of making the investments that will help the state recover and build prosperity for all.

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