Gov. Jim Justice is proposing the largest tax cut in West Virginia history, with a 50% reduction in the state’s personal income tax rate over the next three years.
His proposal would cut income taxes for residents by 50% over three years while setting aside $700 million in reserves.
The phase-out would begin with a 30% reduction in June and another 10% reduction in each of the next two years.
West Virginia’s income tax rates range from 3% to 6.5%, according to the Tax Foundation. The bill would reduce rates to between 1.5% to 3%, according to the legislation introduced to enact the governor’s plan.
“It will take us three years to pull it off,” Justice said during his 2023 State of the State Address on Wednesday. “But absolutely it is that aggressive pathway that will absolutely put unbelievable monies right back into all of our pockets.”
Justice proposed that $700 million be set aside in reserves and urged the Legislature to supply the Public Employees Insurance Agency with $100 million from the state’s budget surplus to shore up its rainy day fund.
He also proposed giving state retirees a one-time payment of $1,500; make minimum monthly payments for all state retirees over age 70 with 25 years of service that will increase to $1,000; fund crisis pregnancy centers; provide additional funding for food banks; and funding for a Welcome Home Program to give a $5,000 incentive to a veteran who chooses to relocate and stay in West Virginia for three years.
State general revenue collections for December were $145.6 million above estimates and 9.0% ahead of the previous year’s receipts. Year-to-date collections were $833 million above estimates as of December.
“We’ve worked really hard to turn our state around from deficits to major surpluses and now our state is blessed with an opportunity for prosperity and growth unlike any before in our history,” Justice said.
“I have listened to the Senate. I have listened to the House,” he said. “And absolutely now, I hope and pray that we will move and move quickly to just show the people just how serious we are in West Virginia.”
The legislature is dominated by Justice’s fellow Republicans.
Last year, Justice proposed eliminating the state income tax altogether, an idea that was rejected by the Legislature.
Not everyone was happy about this year’s proposal either.
The cut would be fiscally irresponsible, Sean O’Leary, senior policy analyst at the West Virginia Center on Budget & Policy, wrote in a blog post.
“Gov. Justice has once again touted the state’s so-called ‘surplus’ as reason to pursue more tax cuts favoring the wealthy,” he wrote. “But make no mistake, the state’s surplus isn’t a sign of uncharacteristically strong revenue growth, or a sign that the state’s needs are all being met.”
He said the state’s budget surplus “has been largely manufactured by artificially low revenue estimates, unexpectedly high energy prices, and a flat budget that is ignoring state needs.”
He noted that as of December, the state was running a healthy surplus, with revenue collections exceeding estimates by $833 million.
“But just like last year, those revenue estimates were set to be artificially low, designed to create the illusion of a surplus,” O’Leary wrote. “Further, there are indications that revenue growth is starting to slow, which should be a strong sign to any tax-cut-hungry lawmakers to pursue those cuts cautiously.”
Separately last week, Justice proposed a fiscal 2024 budget totaling $4.88 billion, up slightly from the $4.64 billion fiscal 2023 budget. Finance officials said the fiscal 2024 budget came in essentially flat.
West Virginia’s general obligation bonds are rated Aa2 by Moody’s Investors Service, AA-minus by S&P Global Ratings and AA by Fitch Ratings.