The West Virginia Legislature and Gov. Jim Justice have been effective tax cutters. In 2023, the Legislature passed a bill reducing the state’s five marginal tax rates by 21.25%.
That law also put in place a formula whereby if certain financial benchmarks were met, the rates would continue to decline. The state hit the number for this past fiscal year, so rates are coming down another four percentage points starting in 2025.
The income tax cuts and other tax reductions since 2017 add up to nearly $1 billion in savings for West Virginia taxpayers. That is real progress toward reducing the tax burden.
Gov. Justice wants to cut even more. He is pushing lawmakers to return for a special session to reduce income taxes by another five percentage points. That would save taxpayers another $100 million.
But caution is advised here.
State government has accumulated huge end of the fiscal year surpluses over the last couple of years by artificially lowering tax collection estimates, holding the line on spending, banking an historic influx of federal cash and collecting increases in tax revenue from economic growth.
There are strong indications that is changing.
State Department of Revenue Deputy Secretary Mark Muchow, the economic forecasting sage, told lawmakers recently that the days of huge surpluses are probably behind us.
“It’s unusual to have huge revenue surpluses like we’ve had here in recent years,” Muchow said. “There’s a lot of factors that generated those huge revenue surpluses, including trying to keep the budget pretty flat and a whole bunch of things. But over the long run, your revenues are going to be more in line with spending, and you’re not going to see every year a $400 million or $500 million surplus.”
Even Senate Finance Committee Chairman Eric Tarr, who is a budget hawk and a proponent of lower taxes, is wary of another reduction now. He asked during a recent legislative committee meeting whether the Justice administration has discussed what happens if expenses go up and revenue goes down.
Meanwhile, the West Virginia Center on Budget and Policy predicts that for 2025, property tax rebates, the additional four percent income tax reduction and the phase out of the remainder of the income tax on Social Security will add up to over $300 million in reduced revenue collections to the state compared with 2024.
Also, politically this is bad timing for another tax cut. We are just four months away from a different governor and a new Legislature. It should be up to them to decide whether the state can reasonably afford additional tax cuts in the future.
Justice and the Legislature deserve credit for cutting taxes, and so far the reductions have been responsible. It would be a mistake to rush into another cut, especially after hearing the warnings.
