If You Cut It (WV Income Tax), Will They Come?

As I mentioned last week, we will be spending a lot of time over the next few weeks drilling down into Governor Jim Justice’s proposed phase-out of the state income tax, beginning with an initial 60 percent reduction.

A big part of the pitch by Justice and others backing this plan is that more people would move here, and young Wet Virginians would be enticed to stay, knowing that salaries, pensions, annuities, IRAs, and Social Security would not be subject to a state income tax.

“We have struggled to generate population growth in West Virginia,” Justice said Friday.  “This will do it.”

But will it?  The answer is complicated.

According to the U.S. Census Bureau, the ten states with the fastest growing populations are Idaho, Arizona, Nevada, Utah, Texas, South Carolina, Florida, Washington, Delaware and Montana.  Of those, four have no income tax—Nevada, Texas, Florida and Washington.

It is difficult to say how much of the growth in those four states can be attributed to taxes.

A report published last year by the Harvard Joint Center for Housing Studies found that 40 million Americans move every year, about 13 percent of the U.S. population. Most of those moves are within the same county or state.  Only 14 percent were across state lines.

The Harvard study cited data from the American Community Survey showing four out of five moves were for housing, family or job-related reasons.  Only 12 percent of all moves were for “other reasons.”

Maybe the income tax rate is one of those reasons.  It depends on who you ask.

When Ohio was considering reducing its income tax by 20 percent a few years ago, Policy Matters Ohio published a study that concluded that would “have no discernible impact on whether people move in or out of the state.”

However, Tennessee, which has eliminated its income tax, is betting that will drive population growth even higher.  The website moving.com listed no income tax as “one of the most practical reasons to move to Tennessee.”

But Tennessee and other states with no income tax have other attributes going for them.  U.S. News and World Report’s annual ranking of the Best States has Tennessee at number 30, Nevada at 37, Texas at 38, Florida at 13, and Washington at number one.

Some of those rankings are not that great, but they are better than West Virginia.  U.S. News and World Report ranked West Virginia 47th, just ahead of Mississippi, Alabama and Louisiana.   And the Mountain State ranked 50th in the categories of economy and infrastructure.

Like I said, it gets complicated.

Governor Justice’s love of his home state is admirable and inspiring.  Whenever he is asked, or volunteers, to compare West Virginia with another state, Justice usually asks rhetorically, “Why would anyone want to live in (insert state here)?”

But the fact is over 99 percent of the U.S. population does choose to live in a state other than West Virginia and those who choose to relocate have 49 other options and myriad reasons for where they move.

There is plenty of research on the mobility issue.  West Virginia’s decision whether to embrace the Governor’s dramatic tax plan must be based on probability, not just wishful thinking.







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