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State income tax cut discussion continues

West Virginia officials continue to discuss a major income tax cut, even as they’re also balancing additional expenses for state government.

House Speaker Roger Hanshaw described recent discussions about a possible income tax cut as “transformative.”

“We don’t want to do something that’s not truly impactful. We’re talking about how do we take a step here that makes West Virginia grab national headlines and say to the world, ‘This is a place where you want to move and work remotely or move and locate your business or move and retire or simply choose to be here,” Hanshaw, R-Clay, said on MetroNews’ “Talkline.”

Hanshaw noted the reality that the negotiations are occurring between the governor, House leaders and Senate leaders — and each party might have a different view of priorities.

Gov. Jim Justice has proposed personal income tax cuts of 50% over three years. The House of Delegates passed the bill representing the tax cut this week. Now it’s in the Senate, which is more skeptical.

“We urge the Senate to follow the House in acting quickly to adopt this common sense legislation that will thoughtfully put hundreds of millions of dollars directly back into taxpayers’ pockets and into the state’s economy so we may continue to make West Virginia a better place to live, work and raise a family,” stated Jason Huffman, state director of Americans for Prosperity-West Virginia.

The reduction is structured as 30% the first year, then 10% each of the following two years. The same percentage reductions would be applied to all the current tax brackets.

A fiscal note assessing the bill concludes it would decrease General Revenue Fund collections by about $161.8 million in fiscal 2023, $1,084.5 million in fiscal 2024, $1,229.6 million in fiscal 2025, and $1,492.6 million in fiscal 2026.

Right now, West Virginia is running a budget surplus of hundreds of millions of dollars. But that’s based on several factors, including high energy prices that have produced high-performing severance tax returns and artificially low state revenue projections that have enforced relatively “flat” budgets for several years in a row.

Meanwhile, officials are also talking about the many additional expenses of state government.

For example, lawmakers are running a bill for additional support in early-grade classrooms that could cost about $100 million a year. Lawmakers are also talking about the need to increase pay for corrections officers in response to more than 1,000 vacancies that caused the governor to declare an emergency.

Then there’s ongoing discussion of the Public Employees Insurance Agency, which is projected to be underwater by more than $300 million in just a few years.

Legislators face big choices about the desire for an ambitious tax plan up against the reality of big expenses.

In a speech on the Senate floor this week, Sen. Eric Nelson lamented the lack of longer-term budget projections from the Justice administration.

Nelson, R-Kanawha, said the tax cut bill “has a tremendous future effect on reduced revenues for the state, giving it back to the taxpayers, which we all in this body appreciate. However, as part of this, we have many other needs.”

The senator continued by saying, “we historically used to receive a six-year plan from the executive branch that not only put out our revenue sources, but it also put out our expenses going forward so that we have some planning mechanism to go ahead. We have many needs in many of our bills before us right now, as well as many needs that will be met with past bills that have expenses associated with them.

“It’s incumbent upon us, it’s incumbent upon our executive branch, to put that plan forward so that we’re prudent with our expenses,” Nelson said.

Budgets are a statement of priorities, said Kelly Allen, executive director of the West Virginia Center on Budget & Policy.

“I can’t help but feel the monumental moment we’re in right now in terms of a longer-term trajectory of our state. We are really at a crossroads,” Allen said at the think tank’s annual legislative breakfast last week.

Allen noted the impact of federal dollars flowing into the state for COVID relief and infrastructure, along with the high energy prices that have generated a wave of severance taxes.

“On the other hand, some of the money we hear about over and over and over again is due to what we’ve failed to prioritize in our budgets in recent years — choosing ‘flat budgets’ over things like investments in PEIA, public employee wages, child welfare programs and family economic security. And now we can see the consequences of those under investments.

“To use an analogy, if you didn’t pay your mortgage or your rent for a few months, you could tell yourself that you have a surplus in your bank account but what you really have is a lot of past-due bills. And that’s kind of where West Virginia is. The bill collectors are showing up in the form of PEIA shortfalls, public worker vacancies in our DHHR and our correctional facilities, thousands of families losing their child care subsidies at the end of last year.”

She went on, “Those are bills that are coming due. So that means we’re at a choice point. This is really a legacy moment for our leaders, for our lawmakers, for ourselves.”