Yesterday, Gov. Jim Justice’s personal income tax cut, introduced as HB 2526, passed the House of Delegates and moved on to the Senate, where we’re sure it will undergo some changes — if it doesn’t get scrapped entirely. But for our purposes, we’re going to discuss the proposal in its current form.
HB 2526 initiates a gradual income tax cut that starts with 30% the first year, then 10% each of the next two years. Which means that by the end of year three, the income tax rates will be half of what they are now: from 3% to 1.5% for the lowest tax bracket and from 6.5% to 3.25% for the highest bracket.
There are a lot of problems with cutting the personal income tax. Justice and delegates are using the massive surplus as justification for “putting money back in people’s pockets,” but — as we’ve said repeatedly — much of the surplus is from one-time federal funds and unfilled state jobs. It’s foolish to cut a long-term revenue stream because of a short-term cash infusion.
Instead of beating that dead horse any more than we already have, we’re going to focus on the more … personal impacts of a personal income tax cut. The problem with Justice’s tax cut proposal is that it slashes the tax brackets equally — 50% across the board. Ultimately, this benefits higher earners more than lower earners, but it’s lower earners who will be most impacted when tax-funded services come up short.
West Virginia has a graduated income tax structure, so the more money you make, the higher the percentage you pay in taxes. But, the structure is kind of like a set of steps, with the percentage changing at each new dollar amount. At the moment, it’s 3% on the first $10,000; 3.5% on over $10,000 to $25,000; 4.5% on over $25,000 to $40,000; 6% on over $40,000 to $60,000; and 6.5% on anything over $60,000.
Let’s put it in practical terms. We’ll start with a large number — say, $100,000 in annual income — so you can see the full math. The West Virginia personal income tax on that is roughly $5,375 — 3% on the first $10,000, plus 4% on the next $15,000, plus 4.5% on the next $15,000, plus 6% on the next $20,000, plus 6.5% on the last $40,000. (To avoid making your eyes glaze over, we won’t repeat the calculations — just keep them in mind as we continue.)
The median income in West Virginia in 2021 was approximately $51,000 (thank you inflation and labor shortages), so the annual state income tax on that would be roughly $2,235. Whereas if you make minimum wage, you earn about $18,200 a year before taxes. Your state income tax, therefore, is roughly $628 per year.
Justice’s proposal cuts those numbers in half by 2025. So, if implemented, savings for each income would be $2,687.50, $1,117.50 and $314, respectively. Someone living very comfortably gets back well over $200 a month, but someone living paycheck to paycheck only gets back roughly $26 per month. See how this disproportionately benefits higher earners?
What’s worse, when the surpluses run out and spending on government services has to be cut because there’s not enough tax revenue, it’ll be the social services the working-poor and middle class most depend on that will get the axe, like WIC and SNAP, public education and community health programs.
If Justice and the Legislature really wanted to put money back in working people’s pockets, they would reduce income tax on an inverse graduated scale, where the highest cuts go to the lowest earners and the lowest cuts go to the highest earners. But like most Republican-sponsored tax cuts, this one is intentionally designed to line the pockets of the rich while appeasing the working class with a few crumbs.
