Tax Cut Negotiators Must Answer Key Questions

Negotiations among Governor Justice and leaders of the Senate and House of Delegates over tax cuts will continue this week.  The most recent meetings are described as cordial, with at least hints of progress.

However, there is no agreement yet with three weeks left in the regular session.

Jared Walczak, vice president of state projects for the Tax Foundation, a leading national think tank that advocates for lower taxes, keeps wondering when West Virginia will get the job done.

“Forty-three states adopted tax relief in 2021 or 2022—often in both years—and of those, 21 cut state income tax rates,” Walczak said.  “(West Virginia) is an outlier. Other states are passing tax reform.”

Walczak said the state legislature has struggled to cut taxes, “even though a majority of both chambers identify tax reform as a top priority.”

That is true, but Republicans and the Governor have not been able to agree on this fundamental question: How much revenue is available for tax cuts? The answer is that it depends.

If you are Jim Justice, you believe the state can return $1.1 billion to taxpayers next fiscal year. If you are a member of the state Senate leadership, you think that amount is closer to $600 million.

The wide difference is rooted in uncertainty about how much new spending will be added to the state budget.  Teacher and public employee pay raises, additional Medicaid costs, new programs for K-3 education, pay needs for corrections officers, allocations to the road fund, expansion of the Hope Scholarships, shoring up PEIA—all could add hundreds of millions to the budget.

So logically, before the Governor and lawmakers can agree on how much to cut taxes, they must come to terms on how much the base budget is going to grow.

Add in the uncertainty about expected revenue growth. The treasury is now bulging with the predicted surplus by July 1st reaching $1.7 billion. However, half of that surplus is attributable to a historic increase in severance tax collections, which are notoriously volatile.

One of the reasons West Virginia’s leaders are struggling to reach a consensus on tax cuts is that none of the negotiators have been here before. The competing needs for revenue are familiar, but the gigantic surpluses are unprecedented.

Yes, it matters what other states are doing on taxes because West Virginia must remain competitive. However, our state also has unique circumstances that make the whole process of cutting taxes more complicated.



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