West Virginia’s new tax cut digs deep into budget surplus

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CHARLESTON, W.Va. (AP) — West Virginia’s governor signed a bill Tuesday that returns more than $750 million to state residents, including a reduction in the personal income tax.

The West Virginia Capito building as seen from across the river in spring
[Sean Pavone |]
Flanked by lawmakers and state officials, Gov. Jim Justice signed the bill after the House of Delegates passed a 21.25% income tax reduction.

“It is absolutely a monumental day,” Justice said.

That was higher than a 15% cut approved by the state Senate and lower than what the Republican governor proposed as a “West Virginia tsunami” — a 50% reduction over three years, including 30% in the first year. The House passed the governor’s 50% plan in January before changing it Saturday.

Justice hopes the signing spurs population growth. West Virginia lost a higher percentage of its residents than any other state from 2010 to 2020, when the population dropped 3.2%, or about 59,000 people, according to the U.S. Census Bureau. The nation’s second-largest coal producer, West Virginia has lost a significant number of mining jobs as power plants turn toward renewable energy sources.

“Today we put our stake in the sand,” Justice said. “We invite any and everyone to this great state to bring their business opportunities to us, to bring their jobs to us, to bring their folks to us.”

The nonprofit West Virginia Center on Budget and Policy said that after the income tax bracket for West Virginia’s top earners was slashed in 1987, the state ranked sixth worst in job growth and last in population growth over the next 30 years.

Under the approved bill, more income tax cuts would be triggered by a formula involving higher than anticipated revenue collections starting next fiscal year. Any further tax reductions cannot be larger than 10%.

In addition, lawmakers passed a credit on personal property taxes that residents pay annually on vehicles at a cost of $157 million to the state. Small businesses also get a tax break and disabled veterans will receive property tax credits.

The amount being returned to residents is more than two-thirds of the state’s record budget surplus of $1.1 billion. Justice called it the largest tax cut in state history.

In addition to federal stimulus money from the coronavirus pandemic, the Center on Budget and Policy said the surplus was buoyed by high energy prices, led by the war in Ukraine, and unspent funds that could have gone toward key state programs and services, including job shortages in state agencies. Severance tax collections from coal, oil and gas represent about half of the state surplus, which the nonprofit said can be “highly volatile.”

Justice has wanted to eliminate the personal income tax altogether and clashed with Senate GOP leadership over tax cut proposals for two years before the compromise bill was passed.

Critics argued that the tax cut favors the wealthy.

The governor’s signing came after a coalition of groups chided lawmakers for failing to use American Rescue Plan funds to help out lower-income residents and communities. West Virginia has one of the highest poverty rates in the nation, according to the U.S. Census.

West Virginia voters in November rejected a proposed constitutional amendment that would have given lawmakers the ability to eliminate a business and inventory tax along with the personal property vehicle tax. Justice toured the state urging voters to reject the November ballot measure, saying it could “harm schools, cities and counties and give companies large tax breaks.”