Governor Justice likes to make a big splash.
That is evident yet again with his proposal to cut the state income tax in half. Specifically, Justice wants to reduce each of the rates by 30 percent the first year and then ten percent each of the next two years to reach a 50 percent reduction by 2025.
Under the plan, West Virginia’s five brackets—3%, 4%, 4.5%, 6%, 6.5%—would all be cut exactly in half over the next three years.
As is often the case, Justice is a confident pitch man. “I’m proposing our West Virginia tsunami that the world will hear in every single way. They’ll hear from every rooftop in every way. A tsunami that does nothing but benefit everyone,” Justice said in the state-of-the-state address.
Justice is absolutely convinced that slashing income tax rates will not only benefit West Virginia taxpayers, but also entice people and businesses to move here.
“All you gotta do is look at the publications, no matter what they may be, and they will all tell you the states that are on a pathway to getting rid of their personal income tax or really aggressively doing something, those states are winning the day,” Justice said.
(Justice also proposes setting aside $700 million from the surplus to cover any revenue shortfall created by the cuts.)
The conservative Tax Foundation agrees with Justice, although its conclusions are more tempered. The Foundation cites the most recent Census figures showing that “people left high-tax, high-cost states for lower-tax, lower cost alternatives.”
“In the top third of states for population growth (including D.C.), the average combined top marginal state income tax rate is about 4.0 percent. In the bottom third, it’s about 6.6 percent,” according to the Foundation.
Of course, there are other factors that contribute to the decision of where to locate—job opportunities, better weather, cost of living, housing availability, education opportunities, closer to family. Lower income taxes may not be a primary driver with everyone, but clearly it would be a consideration.
If the Justice plan is adopted, West Virginia would be better positioned on the income tax front than most of its neighboring states. By 2025, the highest rate in West Virginia would be 3.25 percent. At the current rates, that would be lower than Ohio (3.99 percent), Virginia (5.75 percent), Maryland (5.75 percent) and Kentucky at (4.5 percent).*
Those are the numbers now, and they could change. Virginia Governor Glenn Youngkin is proposing $1 billion in tax cuts for residents and businesses. That would lower the top rate from 5.75 percent to 5.5 percent. Kentucky’s Legislature is considering lowering its top rate from 4.5 percent to 4 percent, effective Jan. 1, 2024.
Back at the West Virginia State Capitol, the Justice tax plan is sailing through the House of Delegates. The challenge will be in the State Senate. Republican leaders there are more interested in a gradual elimination of the income tax, as well as rebates on personal property taxes.
Justice already prevailed in one battle with Senate Republican leaders when he successfully led the fight to defeat Amendment Two in the last election. It was a stinging defeat for Senate President Craig Blair and Finance Committee Chairman Eric Tarr, who are still upset with Justice over some of the personal attacks.
As Justice said in his speech, his tax cut would “make a big splash.” That is true, but Blair and Tarr know Justice cannot make that splash without jumping into their end of the pool.
*(Pennsylvania’s highest income tax rate is 3.07 percent, but many local jurisdictions collect an income tax as well.)
