As Gov. Jim Justice continues to push for another 5% reduction in personal income taxes, West Virginia lawmakers asked questions to try to get at whether the state can truly afford that.
Members of the Joint Standing Committee on Finance asked about the underpinnings of state government’s financial situation during an interim meeting today in Parkersburg.
“I’ve got some hesitation,” Senate Finance Chairman Eric Tarr, R-Putnam, said in today’s meeting.
“If you’re looking at September sales tax collections being less than inflationary growth and we’re looking at corporate taxes compared to last year — I’m talking about compared to last year’s numbers, not the estimate — and then the governor’s coming in suggesting another $110 million in reduction of revenue on top of revenue drops, should this legislature have concerns about that?”
Justice first called for the 5% reduction on July 1, the start of a new fiscal year, catching legislative leaders by surprise.
Lawmakers have generally expressed caution about the governor’s 5% tax cut proposal because other tax cuts are still going into effect and because there are additional spending commitments also still going into effect — like the continued rollout of the Third Grade Success Act and estimated additional costs for more Hope Scholarship enrollment.
The state instituted a 21.25% personal income tax cut this year in a package that included further automatic reductions under certain economic conditions.
West Virginia hit those economic conditions, which triggered an additional 4% personal income tax cut to go into effect.
Justice wants another 5% on top of that.
The governor points to the state ending the most recent fiscal year with hundreds of millions of dollars in revenue generated above the estimate that his administration provides.
But the current fiscal year has begun relatively slowly. The most recent month, August, had revenue collections about $10 million below estimate. After two months of the new fiscal year, the state is $13 million below estimates.
Tarr asked during today’s meeting about the reliability of the state’s financial projections.
“Over the past few years, the governor’s been pretty good about suppressing the revenue estimate that comes out to the Legislature,” Tarr said to Mark Muchow, the state’s deputy revenue secretary who was testifying today. “On these estimates that you’re comparing our actual to now, would you consider this a suppressed estimate?”
Muchow responded, “This was a realistic estimate developed back in November of ’23 for the ’25 fiscal year. The estimates came out from the revenue department, and those were accepted by the governor as revenue estimates. I might say that since fiscal ’24 turned out better than was estimated, we started the fiscal year out a little ahead so we expect to have a surplus this fiscal year above those estimates, a comfortable surplus but not a surplus like you’ve seen in recent years.”
Tarr followed up, wanting more reasoning.
Muchow elaborated by saying several of the state’s economic indicators look solid: “So far we have very stable employment, and we have an unemployment rate that’s near a record low. Our employment actually has been going faster than we anticipated because the labor force participation is edged up a bit. That’s good news.”
He continued by saying, “barring a more significant slowdown than we see happening this year, we should have some surplus.”
Tarr expressed concern that if the revenue estimates are realistic then the first couple of months of the fiscal year don’t seem like a great sign. He specified concern about the recent performance of the personal income tax and consumer sales tax. He wanted to know if those are reliable indicators for economic growth.
Muchow called them important taxes and important measures of economic activity.
Delegate Larry Rowe, D-Kanawha, asked about additional expenses that are being phased in — calculations that lawmakers need to know because they are commitments that could lower the amount of money available for the kind of tax cuts the governor wants.
“Adding to the calculus in how much reduction we’ll have in general revenue will be new major programs, and I think we’ll have several come online this year — the Hope Scholarship and also Third Grade Success,” Rowe said, referring to a three-year implementation of a program to support early childhood education and a major expansion non-public school students eligible for financial support from the state.
Muchow acknowledged those programs are being phased in. “They’re being incorporated in the budget,” Muchow said.
Rowe responded, “It was suggested to me that maybe it would be as much as $360 million in new major programs.”
But Muchow said he did not have cost estimates on hand for those programs. The expansion of the Hope Scholarship itself could result in an additional state expenditure of $150 million to $200 million.
Muchow mentioned some other potential financial factors including a three-year phase-out of income taxes on Social Security benefits, a potential child tax credit that the Justice administration has been pursuing plus a refundable expansion of the senior citizen homestead program.