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Delegates embrace broad tax cut with week remaining in session

CHARLESTON — Delegates passed a multi-faceted tax cut bill late in a Saturday session.

“This is lowering the tax burden for the people of West Virginia,” said Delegate Marty Gearheart, R-Mercer.

Delegates passed the bill 89-4.

The House majority and Gov. Jim Justice early in the session advocated for a straight 50% income tax reduction over three years. Senate leaders advocated for a more cautious, broader approach — with Senate leaders and the governor demonstrating particular friction for a while.

On Saturday, the governor described his enthusiasm with a statement praising all sides.

“Today, we’re nearing home base on this historic deal, negotiated by myself and the leaders of our Legislature, that will really, truly help our people, and I couldn’t be happier,” Justice stated.

The initial 21.25% income tax cut now in HB 2526 is a bit more than one backed by senators a few weeks ago and a bit less than one previously supported by the governor and delegates.

There was still a prolonged conversation on the House floor over whether to accept the Senate’s proposal or to hold out for a steeper tax cut.

“If I were to tell you that I was completely happy with what the Senate has sent to us, it would be disingenuous,” Gearheart said. “However, they have sent us back a plan where we can start to eliminate the personal income tax in the State of West Virginia.”

State officials have estimated the overall financial impact of the tax bill is $695 million in fiscal 2024 and $817.8 million upon full implementation.

The income tax cut, if passed by the full Legislature, could increase in a few years because of a formula serving as a trigger. It would measure general revenue collections in a fiscal year minus severance collections compared to 2019 as a base year. If collections are ahead of the base year, that would activate the trigger.

Reductions wouldn’t exceed 10% at a time. The trigger system would go into effect in 2024.

“We got automatic triggers until those personal income taxes are completely gone,” said Delegate Daniel Linville, R-Cabell, arguing in favor of the proposal. “This is a slam dunk.”

The revised bill also includes a personal property tax credit for vehicles. There’s also a 50% personal property tax break aimed at small businesses, which are refined through definitions in the bill. Also, there’s a tax credit for disabled veterans on personal income taxes on a homestead.

“I think it’s about the best we’re going to get,” said Delegate Adam Vance, R-Wyoming.

The tax cut for businesses drew some criticism from delegates.

“I am concerned about the Rube Goldberg property tax cut,” said Delegate Larry Kump, R-Berkeley.

Others contended the proposal could be better.

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 the likely stimulus of federal dollars. Revenue projections have also been held artificially low, keeping the base budget under control but leading to more reliance on surplus spending.

Some lawmakers argued that the tax cut is not enough, but none of them publicly argued that the tax cut would dive too deeply into what the state can afford.

Kelly Allen, executive director of the West Virginia Center on Budget & Policy, contends that’s the case.

“It would be a mistake for lawmakers to pass permanent tax cuts based on the temporary factors driving our current revenues. Natural gas prices have dropped drastically, and severance taxes won’t be far behind,” Allen said.

Natural gas prices have dropped, and severance taxes won’t be far behind.

Also Saturday, Delegates advanced a $4.6 billion general revenue budget, reflecting the spending bills passed by delegates so far — and by no means the final say on state finances. The House budget bill anticipates more than a billion dollars in spending that would occur if revenue exceeds projections by the end of the coming fiscal year.

The House budget bill passed 87-7.

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