Midway through the fiscal year and just ahead of the regular legislative session, state officials are feeling fine about finances.
Last year, state officials felt such confidence in the state’s finances that they moved ahead with a 21.25 percent personal income tax cut with an estimated financial impact of $817.8 million.
So officials have been monitoring the effects of the cut.
“We’re finally at a point in time where we can discern some trends, some information,” acting Revenue Secretary Larry Pack told lawmakers during interim meetings today. “This is somewhat of a transitional year from a revenue standpoint because of the tremendous tax cut that this body passed.
“The trends are very positive at this point, so we’re very excited about that.”
So far, Pack told members of the Joint Standing Committee on Finance, personal income tax collections are down only 3 percent from the prior year.
“It’s a really, really good trend,” Pack said. “Again, it’s only six months, so that may not end up the same, will not end up the same number at the end of the year.”
Not all states are experiencing that kind of optimism.
About half of Americans live in states that report short-term budget gaps, potential long-term deficits, or both, according to new research by Pew, which analyzes public policy nationally. Some of the crunches have occurred in states that made policy decisions to reduce revenue and increase spending.
Through December, at the midway point of the current fiscal year, West Virginia revenue collections are $406 million ahead of estimates — which are held low intentionally to keep budgets relatively flat.
There are some factors to watch for the remainder of the year.
One is a new state law providing a workaround to a federal $10,000 cap on state and local tax deductions, often called SALT. The workaround allows partnerships and other pass-through businesses to pay West Virginia income taxes as entities rather than passing the tax responsibility through to individual owners.
Another potential factor in state collections could be triggers that further reduce personal income tax rates.
Deputy Revenue Secretary Mark Muchow addressed each of those known unknowns during Tuesday’s session with lawmakers.
Delegate Daniel Linville, R-Cabell, asked about the effect of the SALT workaround. “Is that something for us to be concerned about?” Linville asked.
Muchow responded with analysis that the state will end the fiscal year by exceeding its estimate on personal income tax collections. But he noted, “There will be some timing issues where part of the tax cut will come in a little later than earlier.”
Muchow also described estimated income tax payments from individuals being down 35 percent so far this fiscal year. “But part of that decrease is related to a shift from I, myself, paying an estimated payment if I own a business to businesses actually paying the taxes themselves.”
So, he said, entities paying estimated taxes that might have applied in the past to individuals has gone up 600 percent compared to last year.
“Overall, we’re very pleased by the income tax and its performance,” Muchow said.
Senate Finance Eric Tarr, R-Putnam, asked about the potential for the trigger already in the state’s personal income tax policy leading to additional cuts.
“The trigger for the next 10 percent of income tax reduction, do you anticipate us hitting that?” Tarr asked.
“In my mind, it’s a little too early. There’s too many variables to determine it right now,” Muchow said. noting that 10 percent is the maximum for any any such reduction and that it could actually be as low as 1 percent.
“But there is, I’d say, a 50 percent chance that we get some sort of trigger.”