West Virginia House Approves Personal Income Tax Reduction Plan, Potential Revenue Losses Flung Into Question

The West Virginia House of Delegates has passed a bill that would reduce the personal income tax each year until it is fully eliminated. The measure would equate to at least a $150 million annual loss in revenue and would ultimately cost the state more than $2 billion each year upon full implementation.

Lawmakers in the lower chamber voted 77-23 mostly along party lines Monday to send House Bill 3300 to the Senate, which could make changes to the measure. The passage of the measure comes as Gov. Jim Justice continues to push his own plan despite opposition from business groups and some lawmakers.

Originating in the House Finance Committee last week, House Bill 3300 offers no tax increases to recoup revenue losses anticipated each year under the proposal.

The bill would also create a “personal income tax reduction fund” that would pull dollars from other sources, including the lottery. That fund would speed up the reduction of income taxes until it would be fully eliminated. According to an analysis from the West Virginia Center on Budget and Policy, the personal income tax would be completely eliminated by 2030.

House Minority Leader Doug Skaff, D-Kanawha, expressed concern over the possibility of massive cuts to state government in the future. Skaff argued the Legislature should take more time in considering the plan outlined in House Bill 3300.

“We all want to reduce the personal income tax. But why do we have to do it today on Day 48?” Skaff said. “Let’s kick this thing into the summer. Let’s study it over interims and put a bipartisan work group together. Let’s do it right, let’s do it responsibly, let’s not handcuff and strap the hands of the future legislatures and legislators for years to come.”

But House Finance Chair Eric Householder, R-Berkeley, touted the plan, arguing that residents would continue to benefit over the course of years.

“This is a new green deal for West Virginia. Not the one you’re thinking of, but a true green deal that puts money in your pockets,” said House Finance Chairman Eric Householder, R-Berkeley.

Sean O’Leary of the West Virginia Center on Budget and Policy told West Virginia Public Broadcasting last week that the state budget may be able to afford the first year of lost revenues under House Bill 3300, but subsequent years would likely come at a cost to state agencies and programs.

“No one said one word about how we’re going to pay for this $150 million a year. It’s got to come from somewhere,” O’Leary said.

O’Leary noted rising costs to Medicaid and PEIA as well as new legislation that allows for education savings accounts — which will come at a $126 million price tag per year — as other reasons to tread carefully.

“We’ve got to pay for these things. And we’re going to get rid of $2 billion in just a handful years. No one’s answered that question [about how we pay for this tax reduction],” he said.

On the House floor Monday, lawmakers adopted one amendment from Householder that would delay funds being transferred to the personal income tax reduction fund until July 2022 instead of Jan. 2022.

Delegates also rejected two amendments to House Bill 3300.

The first, from Del. Mick Bates, D-Raleigh, sought to use hypothetical revenues from adult-use cannabis for the personal income tax reduction fund. Bates’ amendment was rejected on a 29-71 vote.

Another amendment from some Democrats, including Del. John Doyle, D-Jefferson, sought to strike out the entirety of House Bill 3300 and simply offer a $150 tax deduction to all filers — was also rejected on a 23-77 vote.

With Wednesday being Day 50 of the legislative session and known as “Crossover Day” — a deadline for bills to come out of their chamber of origin — House Bill 3300 has been seen by some as a placeholder to continue the conversation on reducing the personal income tax.

The bill was offered as an alternative to the governor’s plan — which Justice continues to promote despite a lack of buy-in from the House — that would reduce the personal income tax for all filers by 60 percent, but also calls for hikes to taxes on consumer sales, tobacco, alcohol and soda, among other increases.

Jared Walczak, vice president of state projects at The Tax Foundation, said proposals like reducing the personal income tax are always a negotiation — between political parties, different legislative bodies and the governor.

Walczak said because of that, any bill that makes it to the finish line is likely to look different than what we’ve seen so far.

“We’re seeing that here, the governor has his proposal, the House has a proposal, there are senators who have different ideas about this,” Walczak said. “If there is going to be any significant reform package, it will undoubtedly borrow elements from each of these proposals, you wouldn’t expect one to get through without change.”

Ahead of the session, Senate President Craig Blair, R-Berkeley, touted the idea of reducing the personal income tax. He and other leaders in the Senate have yet to reveal their position on the issue, stating they want to have a look at what has been sent over to them from the House.

The West Virginia Legislature’s 60-Day regular session ends Saturday, April 10 at midnight.