Senate Finance Chairman Eric Tarr, R-Putnam, speaks on the floor of the West Virginia Senate on Wednesday, 4/7/21. Photo by Will Price/WV Legislature.

Republican Gov. Jim Justice and some state lawmakers predict the elimination of the personal income tax would bring hundreds of thousands of new residents to the state.

There’s no guarantee of that, but their decisions regarding the tax, and its effect on the state budget, will absolutely affect West Virginians who already live here.

The House of Delegates has already passed their versions of a personal income tax phase-out (House Bill 3300) and a budget bill, House Bill 2022. The state Senate did the same on Wednesday night. The two bodies will have to agree on one version of the bill and get it signed by Gov. Jim Justice for it to become law.

The House’s version of the personal income tax bill estimates a cut of $150 million in personal income tax revenue each calendar year, and makes up for some of that loss with cuts in the budget bill, including deep cuts to West Virginia University and Marshall University.

The Senate’s version estimates a much-higher $818 million loss of personal income tax revenue the first calendar year. The state typically receives about $2 billion yearly in those taxes. Their version tries to raise revenue to replace it by raising sales taxes, creating new taxes on computers, advertising and professional services, creating a new fund for severance tax and other money to be used for losses from the income tax phase-out. The budget includes 1.5% tax cuts for state agencies and programs, including higher education.

Losing population

West Virginia is the only state to lose population over the last 70 years. Justice and Senate Republicans have said the personal income tax repeal could bring hundreds of thousands of new residents to West Virginia. 

“We’ve tried in West Virginia. We have cut taxes on a lot of different things throughout the years, but has it really brought people to West Virginia? The answer is no,” Justice said in February. “But this will.”

Opponents of the repeal include Delegate Joey Garcia, D-Marion, who called Justice’s certainty “a lot of wishy-washy thinking.” 

Garcia said people considering whether to move to West Virginia don’t consider the personal income tax a “driving force.”

“They’re coming here because they either have a job already, or because they can do what they’re doing right now,” he said. “And they think this is a great place to live.”

Garcia also noted that repealing the personal income tax would, of course, benefit people with more income. Proposals to raise other taxes, including sales taxes, would disproportionately hurt lower-income people.

Senate Democrats criticized Republicans Wednesday night for providing them a new tax plan with many changes just before the floor session, without an attached fiscal analysis. 

When the Senate finance committee passed the tax plan, they had proposed bringing back the food tax and raising the sales tax to 8.5 percent. Their budget also included a $6 million cut for Marshall University and a $12 million cut for WVU.

The tax plan unveiled Wednesday would not bring back the food tax, and lowers the proposed sales tax increase from 8.5% to 8%,

Their budget bill now subjects West Virginia and Marshall universities to the same 1.5% cut facing the rest of the state’s higher education system, as opposed to more drastic cuts, first proposed by the House.

West Virginia University’s downtown campus in Morgantown. The state’s flagship university faced steep cuts in the House of Delegates’ version of the budget, but the state Senate has proposed a 1.5% cut, the same as the cut proposed for the entire state higher education system. Photo courtesy WVU.

Senate Finance Chairman Eric Tarr, R-Putnam, told lawmakers Wednesday that the new tax bill also adds a $1 tax on cigarettes, and new taxes on professional services, including accountants, architects and engineers.

It’s unclear how long the personal income repeal would take under the Senate’s plan, because senators’ version includes a fund, which would receive coal and natural gas severance taxes once they “get to where they’re booming again,” Tarr said, as well as higher cigarette taxes. It would have to reach $100 million before $50 million in funds were removed for further reductions in the personal income tax, Tarr said.  

“You can have years of boom and bust,” he said. Tarr noted that West Virginia is losing population and said there is a “correlation” between personal income tax and population movement.

He said studies on personal income tax and population could be found on the conservative Tax Foundation’s website.

The Tax Foundation, in an analysis of the state’s plan to eliminate the income tax and raise other taxes, used a whitewater rafting metaphor: “Paddling hard on income tax relief is admirable, but not at the cost of sluggishness on the other side of the boat as other taxes are made less competitive.”

“What I can tell you is the reason that this path was chosen is because the number one problem that affects this state is loss of population,” Tarr said, noting the state is also working on broadband access and expansion. “And when you look at things that affect population, and movement, quality of life is way up there.”

But according to the left-leaning West Virginia Center on Budget Policy, the personal income tax phase-out and corresponding tax increase and expansions would create a negative financial net impact for the average West Virginia resident.

According to the center’s analysis:

  • West Virginians who make less than $20,000 would pay an additional $26 per year, people making between $20,000 and $35,000 would pay an additional $206, and people who make between $35,000 and $55,000 would pay an additional $285.
  • People making $55,000 to $89,000 would be the first to see actual benefits, according to the center, and save $38. 
  • The top earners would see the biggest benefits. People making $89,000 to $177,000 would save an average of $1,019 per year, and people making between $177,000 and $413,000 would save $2,989.
  • The top 1%, people making more than $413,000, would save an average of $12,146.

The center’s analysis includes consideration of Justice’s proposed tax rebates for households that make below $35,000, which are in the latest version of the bill. But those rebates would end once the personal income tax is fully phased out.

Delegate Brent Boggs, D-Braxton

Delegate Brent Boggs, D-Braxton, supported the House budget bill, but said the personal income tax bill needs more study. He noted that that House Republicans assume that future surpluses will assist in paying for the income tax phase-out.

Boggs, a former House majority leader, said he told Justice he would prefer lawmakers discuss the possible repeal during interim meetings and find consensus rather than Justice calling a special session.

“I think it’s something that I think some people hope will bring people into the state, but there’s no guarantee of it if we don’t fix these other things first,” he said.

Jobs and Education

Boggs noted that business and industry groups tell him they need a “well-trained and well-educated drug-free workforce” and that cuts to higher education make it more difficult to attract the “post-extractive industry jobs that we want.”

“Now there’s a lot of different things that we could kick around,” he said. “But I think that’s why we need to do this very deliberately, and everybody get to the table and talk about what’s in the best interest of the state long-term, not just some short-term fix that grabs the headlines.”

Boggs said only two areas of the state are experiencing “meaningful growth”: Morgantown and the Eastern Panhandle.

“And they don’t seem to be having any trouble at all, without doing anything with the income tax,” he said. “But what about Southern West Virginia? What about Central West Virginia? What about Kanawha County? We have about 50 counties that are just literally hemorrhaging population. And there is no assurance that getting rid of the income tax is going to bring people into those areas.”

He also noted that new residents will need internet access, which areas in his district still lack. 

Delegate Daniel Linville, R-Cabell, said in an interview Wednesday that while the state budget does not include an appropriation specifically for broadband infrastructure, lawmakers did pass a separate bill to offer providers loan insurance and that more than $1 billion in federal funds are already promised to the state.

Senate Minority Leader Stephen Baldwin, D-Greenbrier, is concerned because while the Senate restored funding for WVU and Marshall Wednesday night, Republicans’ plan continues to cut higher education funding across the board at 1.5%.

That includes funding for WVU and Marshall, but also small community and technical colleges, as well as Lewisburg’s West Virginia School of Osteopathic Medicine in his district. 

Republicans have said that federal coronavirus relief funding will assist colleges. But Baldwin noted WVU lost more money from COVID-19 related problems than they got back in federal appropriations, leaving them with an about $50 million shortfall. He predicted colleges would raise tuition, resulting in more student loan debt. 

Baldwin also raised concern about the provision of the Senate version of the bill that makes 1.5% cuts to state agencies and programs across the board, including some that have demonstrated success, including the state tourism department and the governor’s Jobs and Hope recovery program, which helps people in recovery find jobs, go to school, and get criminal records expunged.

Baldwin noted that the cut affects agencies that are smaller and less high-profile but still do important work, such as the state conservation office, which, among other duties, upkeeps dams.

“And if any of them were to fail, they wipe out towns,” he said.