As he stood before a packed House Chamber for his final State of the State address in January, Gov. Jim Justice rattled off a list of his greatest hits while in office.
There was the obligatory mention of last year’s $1.8 billion in surplus revenue. Then came a reference to infrastructure funding. And once again, there was mention of the 2023 tax cuts, a project that Justice has pursued for much of his time in office.
“I would tell you just this, the faster that we can get rid of the taxes on the individuals, the better we’ll be,” Justice said.
This has been a common refrain from the Justice administration in the year since lawmakers passed a 21.25% personal income tax cut. The cut, which also includes automatic triggers that would slash taxes even further, could punch a sizable hole in the state’s revenue moving forward, reducing the amount of money available to support government services.
And the governor has already proposed more cuts, this time by phasing out the tax on social security benefits, along with credits for child and dependent taxes and property taxes paid by senior citizens.
But there’s a problem: Experts say that some of these proposals — and many other proposed tax changes introduced by lawmakers this legislative session — are unlikely to attract people to West Virginia, as legislators intend.
When it comes to a slew of proposed tax credits in particular, they “reduce revenue for the state that could be used to provide services that businesses and individuals can’t provide on their own, like public education, like infrastructure,” said Sean O’Leary, senior policy analyst for the West Virginia Center on Budget and Policy.
Lawmakers have already advanced one of Justice’s tax proposals; the House voted Thursday to cut the remaining income tax on social security benefits. But while it’s not clear if many of lawmakers’ proposed tax changes will make it over the finish line, several tax policy experts are still urging caution.
They say ultimately, a better job market, quality housing, and improved schools are more likely to draw people to the state than additional tax credits, which can often be ineffective and expensive. And the creation of a state-level West Virginia Earned Income Tax Credit, one of a handful of tax credits aimed at low-income workers and families that some tax policy experts supported as an exception, has been repeatedly introduced with little movement. This year’s attempt has also failed to get much support in the state Capitol’s marbled halls.
Proponents of some tax credit bills hope to address West Virginia’s workforce and population woes
West Virginia already has several types of tax credits, ranging from credits for manufacturing, to building rehabilitation to the state’s film industry. So far this year, state lawmakers have primarily introduced several nonrefundable tax credits — which means they reduce the taxes owed, but don’t give the taxpayer any of the money that’s leftover after the credit has been applied — aimed at groups ranging from business leaders to parents and employers trying to afford child care.
Other proposals are targeted at supporting specific jobs or encouraging state population growth more broadly. These proposals would, in theory, help build up West Virginia’s workforce and also encourage people to move here, allowing the state to address two ongoing challenges simultaneously.
Lawmakers have suggested using tax credits to try to get recent in-state college graduates to stay in West Virginia, and to entice West Virginians who have moved away to return. There are also proposals to offer tax credits to doctors who start practicing in the state, and another one for nurses.
Sen. Mike Caputo, D-Marion, said he was inspired to sponsor the nurse tax credit bill during the COVID-19 pandemic after hearing about the stress being put on nurses in the state.
“We’ve got to find a way to not only keep people in this profession, but to recruit young men and women to this profession as well,” Caputo said.
So far, only SB 208, which is sponsored by Senate Majority Leader Tom Takubo, R-Kanawha, has been taken up this session, but is still pending before the Senate Finance Committee. Takubo did not respond to requests for comment.
Many of these tax credits don’t seem likely to clear their chambers of origin before the Feb. 28 deadline. Still, there is a broader policy question at play here: will cutting taxes encourage people to move to a state?
This question has been examined by economists across the political spectrum for years, and often comes up when states are considering sizable income tax cuts. This has also been the case in West Virginia, where lawmakers have regularly raised population growth and increased business activity as justification for cutting taxes.
But according to Michael Mazerov, a senior fellow with the Washington, D.C.-based Center on Budget and Policy Priorities, tax policy isn’t much of a driving factor behind why most people move.
“The vast majority of people move for jobs, they move for family reasons, they move because they’re retiring and want to play tennis all year round,” Mazerov said. “Taxes have an absolutely minimal impact.”
Even among pro-tax reform groups that argue taxes do play a role in state migration, the idea that workforce or population-oriented tax credits in particular influence interstate moves hasn’t gotten much support. They criticized these types of tax credits, saying they would create “a more non-neutral tax system where you’re definitely picking winners and losers,” said Katherine Loughead, a senior policy analyst and research manager for the Tax Foundation.
There is a tax credit that could help the state. Lawmakers have yet to pass it.
Several of the credits proposed by lawmakers focus on reducing the taxes of people with higher incomes that have recently moved to West Virginia or could be incentivized to do so. Tax proposals targeted at providing assistance to people with lower incomes already living in the state, however, have been less common.
Some of this is likely because West Virginians in low-paying jobs need a different sort of tax relief. Because their tax burdens are already smaller, they are far less likely to receive much benefit from the more popular nonrefundable credits. Refundable credits — which let a person or business directly receive any money left over if a credit is larger than the tax they need to pay — are more likely to help, according to O’Leary from the West Virginia Center on Budget and Policy.
As lawmakers consider whether they can cut more taxes this year, there’s one type of tax credit that hasn’t been part of the conversation: an earned income tax credit. While generally policy experts said most of the tax credits proposed this legislative session are unlikely to be very effective if passed, the earned income tax credit is an exception.
This credit is similar to the federal earned income tax credit, which was established in 1975 and is targeted to low-income workers and their families. The credit is refundable, meaning that it directly gives money to taxpayers who may not owe a lot in income taxes, but who could use the extra money. The federal earned income tax credit has been credited with reducing poverty, helping single mothers find work, and improving outcomes for children.
That success has encouraged 31 states and the District of Columbia to develop their own state-level earned income tax credits, which provide additional financial support to people with lower incomes. The overwhelming majority of these credits are refundable, directly giving state residents in need money that can help immediately.
Despite several attempts over the years, West Virginia has yet to join this group. Multiple bills creating a state earned income tax credit have failed, many of them not even reaching a committee agenda. A bill sponsored this year by Del. Kayla Young, D-Kanawha, would create a state earned income tax credit along with other relief targeted at low-income West Virginians. The bill has been pending in the House Finance Committee since the start of the session.
If passed, the bill could provide a boost to many working families.
“They put cash in the hands of the people who need it the most, particularly those with families,” O’Leary said. “When families have greater incomes, children have better outcomes in school, they’re more likely to go to college, they’re likely to have better jobs when they’re older, all of those things.”