W.Va. Revenue Secretary Explains Tax Cut Proposal

Next week, in a special session called by Gov. Jim Justice, the West Virginia Legislature will look at reducing the state’s personal income tax by 10 percent overall with people in the lower rates getting slightly higher percentages.

News Director Eric Douglas spoke with Cabinet Secretary for the Department of Revenue Dave Hardy to get an understanding of what the cuts would mean to the state and the average person.

He explained that if you made $1 million, your reduction would be 8 percent. But at the lower level, your first $10,000 of taxable income receives a 33 percent reduction. If you make $20,000, you receive a 19 percent reduction and a 14 percent reduction for $30,000. Taxpayers won’t see 10 percent exactly until $60,000.

For a person making $50,000 a year, that means an 11 percent cut and about $240 in tax savings.

This interview has been lightly edited for clarity.

Douglas: I believe the governor said this is effectively about a $250 million a year cut. 

Hardy: $254 million to be exact.

Douglas: So that’s a $254 million reduction in revenue. Where’s that money coming from?

Hardy: It’s a $254 million reduction from record breaking revenue. We had a $1.3 billion plus surplus in the fiscal year that we just finished. Our revenue growth was $1.1 billion in a 12-month period. To put that in perspective for you, that’s more than the state’s rainy day fund, and the rainy day fund took 30 years to build.

So in one year, our revenue grew in excess of the entire state rainy day fund. But we are under the ARPA guidelines — American Rescue Plan Act guidelines — that limit how many tax cuts or what type of tax cuts you can make until the end of 2024. So we did a calculation. And we recommended to the governor that $250 million roughly was the most that we felt like we could cut and return to West Virginians’ pockets.

Douglas: Those ARPA guidelines were put in place so state legislatures didn’t use the federal money to start making tax deductions. 

Hardy: Well, yes, they were put there, because the way ARPA is set up, you have to grow a certain amount each year, to even be able to consider a tax cut. Well, we exceeded the growth rate spelled out in ARPA. So we were able to return part of this tax cut, or the revenue to the West Virginians.

Let me tell you, it wasn’t just federal money or anything to do with federal money that made us have such a remarkable year. Our severance tax revenues this year were 180 percent. So we had a record breaking year. And when I say a record, I mean a record by $300 or $400 million in excess. Natural gas in West Virginia is doing very well right now. And the metallurgical coal market has also increased substantially.

Douglas: So how confident are you that this will continue? If you’re making a $254 million reduction in revenue, what if five years from now we’re not bringing in those kinds of numbers, and then we’re in a hole?

Hardy: I’m confident that we can take the $254 million cut and still be healthy going forward. Again, it sounds like a tremendously large number, but when you put it in perspective of the state’s budget, the state’s general revenue this year was $6 billion. It’s $254 million out of $6 billion. And ARPA guidelines restricted us on how far we could go. But we thought it was a very safe cut to make, or we wouldn’t have recommended it to the governor.

Douglas: The governor and the legislature have been talking about reducing this and completely doing away with the personal income tax, which I’m guessing that’s about $2.5 billion.

Hardy: About $2.6 billion.

Douglas: I’m guessing you’re not anticipating that happening anytime soon.

Hardy: We go through the state’s finances month by month, and quarter by quarter and year by year. I wouldn’t anticipate making a decision on that today. I do know the governor’s number one goal is to phase out the state income tax in West Virginia. He feels like if West Virginia would do that, that we would have a much greater potential for population growth and attract people to move to our state.

Douglas: What do you anticipate happening next year? How do you expect this to affect the state?

Hardy: I think the state is going to have a very healthy fiscal year next year. I think the severance tax is going to continue to do very well. And I think West Virginia’s economy is doing well. Right now we have a record low unemployment rate. And so I think we’ll do well next year. And I think we can have a healthy budget. The West Virginia Legislature and the governor, particularly the governor, because he’s the one that proposes the budget, have kept our state budget very tightly constrained over the last five years.

If you look at our budget from 2017, and look at our budget today, I’m not going to call it a flat budget, but it has been very, very limited in growth. And mainly the only growth in the spending side has been the governor’s bill to give state employees deserved pay raises. So you look at the revenue side, but you also have to look very carefully at how tightly the expense side has been controlled by the governor and the budgets that he’s proposed to the legislature.

Douglas: So what’s the average citizen going to see?

Hardy: Here’s how it’ll work. The state tax department will issue new withholding tables, which means that during the second half of 2022, you will have less money withheld out of your paycheck. Because the state tax rates have gone down, if you are an estimate payer, and a lot of people are, they pay estimates on Sept. 15 and then they pay the next one on Jan. 15. You can adjust your estimated payments down. Then next spring, when you file your tax return in the spring of 2023, you’ll get a much larger refund. So you’ll see it in three different ways because the first six months of this year, you’ve paid under the old tax tables.

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The state legislature will look at the question in a special session on Monday. A statement from the Democratic leadership in the legislature indicated enthusiasm for the discussion as a way to reduce the burden on working West Virginians in light of inflation.

“West Virginians need help now,” Senate Minority Leader Stephen Baldwin, D-Greenbrier, said. “As inflation has grown this year, Democrats have proposed ideas to provide the people with relief now — gas tax relief, sales tax relief, tax credits for families, workforce investments and even a tax rebate.”

House Minority Leader Doug Skaff, D-Kanawha, agreed.

“The governor announced this plan without discussion with or input from legislators — and we are the ones who have been hearing from people across the state on what would help them the most,” Skaff said. “The limited special session call also precludes us from discussing other avenues for meaningful tax relief for West Virginians. His lack of communication aside, we look forward to reviewing this plan to see how we can provide much-needed relief to the citizens of our state.”

See the proposed legislation.

See the existing tax code. Scroll down to section 4E.