This week, Governor Justice called for a special session to consider yet another attempt to cut the state’s income tax. Like previous failed attempts over the past few years, this latest plan would lead to major revenue losses for the state, while giving most of the tax cut to wealthy West Virginians.
The personal income tax is the state’s largest source of tax revenue, providing the state with $2.5 billion in FY 2022 and accounting for 43 percent of the state’s general revenue fund. The income tax is also the state’s fairest source of revenue. West Virginia has progressive income tax rates, meaning that they are structured such that higher-income residents pay a larger share of their income in personal income taxes relative to low- and middle-income residents. This structure helps ensure that wealthier taxpayers pay their fair share, allows for lower tax rates on low- and middle-income families, and provides a counterweight to more regressive taxes, such as the sales tax. That structure is also why cuts to the income tax almost always favor the wealthy, and the latest plan from Governor Justice is no different.
Governor Justice’s proposal would reduce total income tax collections by 10 percent, costing the state over $250 million in lost revenue per year, a number that would grow over time given the income tax is one of the state’s most reliable sources of revenue growth. The proposal reduces each of the state’s marginal income tax rates, but while the lowest rate sees the largest reduction, the progressive structure of the income tax means that the proposal’s rate reduction generates the greatest savings for the state’s highest income earners.
Middle- and low-income households would only receive meager tax savings compared to the wealthy. Middle-income West Virginians, with incomes between $35,000 and $55,000, would receive an average tax cut of just $120, compared to an average tax cut of $3,171 for the wealthiest one percent of West Virginians, or those with incomes over $443,000. On average, the wealthiest 20 percent of West Virginians would receive 62 percent of the total $250 million tax cut, with the wealthiest one percent of West Virginians receiving 14 percent of the tax cut.
Governor Justice appears to be relying on the state’s current budget surplus to finance this tax cut. However, using a one-time source of revenue – in this case a one-year budget surplus – to fund a permanent ongoing tax cut could quickly cause problems for the state. This is of particular concern since West Virginia’s current surplus is largely the result of lowered revenue estimates, a strong national recovery from the pandemic, billions in federal aid, and high inflation and energy prices.
Given the expectation that revenue growth will slow in the coming years, state officials – as well as budget messages from the governor himself – have warned to be cautious and conservative with the state’s current surplus and budget, arguing to keep the budget flat and to only use the surplus for “one-time needs” or to offset future obligations, such as looming shortfalls in Medicaid and PEIA. With the current surplus the result of “surprising inexplicable patterns” in revenue collections, as stated by Revenue Secretary Dave Hardy, it would be inexplicable to use the temporary surplus to finance a permanent tax cut.
Like past failed income tax cut plans, Governor Justice’s latest proposal would deprive the state of resources to address real needs and make needed one-time investments, while also failing to have a significant impact on the vast majority of West Virginia households. West Virginia doesn’t need more ineffective tax cuts that largely benefit the wealthy – it needs consistent revenue to provide additional support to currently under-resourced public services.
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