In his State of the State address, Gov. Jim Justice proposed cutting taxes for West Virginians by repealing a state tax on Social Security income. While the governor’s proposal is being touted as a “middle class” tax cut, it mostly benefits wealthy retirees while doing little for those who struggle to make ends meet. A better approach would be to limit the tax cut to lower-income retirees, and help working West Virginians save for retirement by enacting a state-level Earned Income Tax Credit. Link to article.
Under Gov. Justice’s proposal, West Virginians with six-figure incomes could see an average tax cut of $1,879, while those earning around $28,000 would see their taxes lowered by only $35, on average. In other words, the average tax cut for wealthy retirees would be up to 53 times greater than for those with the lowest incomes.
Instead of entirely eliminating the tax on Social Security, policymakers could repeal the tax for retirees with incomes below $100,000 and give a bottom-up tax cut to those who are still working. Adding a refundable state EITC to a partial elimination of the tax on Social Security could reduce taxes by $123 on average for the lowest-income West Virginians.
Both Republicans and Democrats agree that the EITC is smart policy, one that is working across the country: 29 states and the District of Columbia have enacted state EITCs that piggyback on the success of the federal credit. West Virginia should join them. A refundable state EITC set at 15 percent of the federal credit would lower taxes for more than 150,000 working West Virginians by putting an estimated $54.7 million back into their pockets, and ultimately, back into our economy.
The EITC has been shown to not only help lift people out of poverty, it also encourages work and can lead to better health and educational outcomes for children.
A West Virginia EITC would also help to ensure that our seniors, many of whom have been forced to work later and later in life, are able to save enough to retire comfortably. At the national level, one in every three Americans has accrued less than $5,000 in retirement savings and nearly 80 percent feel financially unprepared for retirement. In West Virginia, these numbers are worsening, as the opioid crisis forces more grandparents to raise grandkids while their own children battle addiction. A state EITC would lower taxes for these caregivers and thousands of other West Virginians struggling to raise a family while earning low wages.
West Virginia already has an upside-down tax system, in which the lowest-income families pay, on average, 9.4 percent of their incomes in state and local taxes while the top 1 percent pay just 7.4 percent. We should be working to turn that system right-side up. Adding a refundable EITC and limiting the tax on Social Security benefits for low- and middle-income retirees is a one-two punch: It would provide more balance to the governor’s tax cut proposal while helping to ensure West Virginia is considered one of the best states for both workers and those who are retired.