Blog Posts > Tax Cut Triggers Complicate Budgeting Process, Come at Cost of Pressing Unmet Needs
January 4, 2024

Tax Cut Triggers Complicate Budgeting Process, Come at Cost of Pressing Unmet Needs

When state lawmakers return to Charleston later this month, enacting a state budget could be more complicated than in past years. As part of the tax cut package enacted in 2023, lawmakers didn’t just slash the personal income tax once—they also set into motion a ticking clock that will eventually fully eliminate the tax without any replacement revenue. That’s because the law included a complicated triggering mechanism that automatically enacts more tax cuts if a modest “trigger” is met, regardless of spending needs at that time. To put it plainly, the triggers in the 2023 tax cut package mean that more tax cuts that primarily benefit the wealthy are first in line as a state priority when revenues grow— before funding PEIA, child care, raises for state employees, infrastructure investments, or any number of other pressing needs.

These triggers are likely to make it more difficult for lawmakers to address multiple crises created by years of flat budgets that have underfunded critical state services. Together with the lack of long-range budget planning from the Justice Administration, the triggers likely mean more underfunding-driven crises in coming years unless lawmakers reverse course. 

Prior to discussing the harms of the triggers, it’s worth revisiting the initial tax cuts from HB 2526, which significantly reduced personal income tax rates, with about two-thirds of the benefits going to the top 20 percent of taxpayers. The bottom 20 percent of households will receive $21 per year on average, while the top 1 percent will get around $10,000 annually. Throughout the tax debate, lawmakers and officials repeatedly promised that West Virginia “would not become Kansas,” but the estimated cost of the first round of tax cuts as a share of the state budget is almost identical to that of the disastrous Kansas tax reforms, even prior to additional cuts triggered in upcoming years. By FY 2028, West Virginia’s tax cuts will cost an estimated 10.5 percent of the total general revenue budget, compared with tax cuts slashing an estimated 11 percent of general fund revenues in Kansas, where lawmakers were forced to quickly roll back the cuts when budget crises emerged.

Even at that immense cost, West Virginia won’t feel the full brunt of the 2023 income tax cuts right away because of the inclusion of the aforementioned triggers that will further reduce the personal income tax until it is eliminated. While proponents often portray tax cut triggers like those in HB 2526 as fiscally responsible, they are far from it, as they enact future tax cuts without adequate information about the economy or budget needs at the time that those cuts will take effect.

Lawmakers enacting these drawn out tax cuts often do not have enough information to fully understand if the cuts will be responsible or desirable when they take effect. This is exactly what happened in West Virginia, where the governor and legislative leaders pushed sweeping tax cuts even without a six-year financial plan, which has historically served as the state’s long-range budget planning tool.

The triggers in the tax cut law essentially create a forcing mechanism for current and future legislators to put funding for public services on the backburner, as the tax cuts will happen automatically unless lawmakers reverse course and repeal the triggers. Senate Finance Chairman Eric Tarr has already warned that his committee will only allow a modest, COLA-equivalent pay raise for state public employees to be enacted next year if they can make offsetting budget cuts elsewhere. And significant new PEIA, Medicaid, and Hope Scholarship costs will be added to the base budget in upcoming years, just as the triggers go into effect, automatically diverting revenue to tax cuts instead of those budget needs.

Despite the clear need for new investments to offset years of austerity and flat budgets, tax cut triggers prioritize more cuts for the state’s wealthiest households instead. But let’s say for the sake of argument lawmakers determine that the state can truly afford more tax cuts. Even then design of the automatic triggers is still problematic, making the typical budgeting process incredibly difficult for lawmakers as it introduces more uncertainty.

Lawmakers typically pass the state budget for the fiscal year that runs from July 1 to June 30 the prior March based on expected revenues from current tax rates. Under the tax law, the Secretary of Revenue is directed to determine if the trigger was met in August—already two months into the fiscal year—and, if it was, an additional tax rate cut happens in January, the middle of the fiscal year in which lawmakers have already enacted a budget based on previous tax rates.

This uncertainty could result in state lawmakers either feeling they need to underfund the budget in the event a tax cut is automatically triggered or being forced to make mid-year budget cuts to agencies and programs when triggers go into effect. This creates an untenable and difficult budgeting scenario for lawmakers.

We will soon see how the governor and lawmakers will approach budgeting this year given the revenue uncertainty the triggers create. What is clear is that the state has many unmet needs due to years of austerity, and these needs should be prioritized over additional tax cuts that mostly benefit the state’s wealthiest people. Lawmakers can begin to do this by repealing the triggers and waiting to enact additional tax cuts if they feel they are warranted through a proactive and fiscally responsible process that incorporates long-term budget planning.  

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