West Virginia Poised to Join Ranks of States Cutting Income Taxes

A s the new year rolls on, residents of eleven states across the country welcomed reductions in their individual income-tax rates. As 2023 unfolds, will West Virginia join their ranks?

Historic budget surpluses, general economic malaise, and a more geographically dynamic labor market are driving a trend among state-level lawmakers to lighten the load on their taxpayers and create a more competitive and enticing policy environment for current and prospective residents.

Over the last several years, West Virginia has enacted transformational policy changes. In 2015, the legislature passed a series of tort reform bills that resulted in the state’s moving off the American Tort Reform Association’s “Judicial Hellhole” list. In 2016, it became the 26th right-to-work state. In 2021, the legislature passed the Hope Scholarship, which was, at the time, the nation’s broadest private-school-choice program.

In 2023, reductions in personal-income-tax rates should join that list of transformational public-policy reforms.

Among its neighbors and regional competitors, West Virginia has the top marginal income-tax rate, at 6.5 percent. This does the state no favors in either attracting new residents or motivating current residents to stay. Granted, West Virginia has long struggled to maintain or grow its population for reasons including, but not limited to, a relatively older population, decline of the coal industry, tragedies of the opioid crisis, and generally lower levels of economic dynamism and opportunity. Solutions to some of these population challenges span beyond what state-level policy change can address. However, addressing the competitive disadvantage of relatively high income-tax rates is within the power of state-level policy-makers to bring new residents and entrepreneurs to the Mountain State.

Thankfully, the foundation for income-tax reform is already in place. West Virginia legislators have a strong history of demonstrating responsible, fiscally conservative budgeting. For example, in 2017, the state faced a budget deficit of $500 million. To address that shortfall, Governor Jim Justice, then a Democrat, proposed addressing the shortfall by raising taxes throughout the state’s economy during his first State of the State Address. Rather than following the executive branch’s lead, the legislature went to work making the tough decisions on where to trim down the size of government and passed a balanced budget without raising taxes on residents. Since then, the governor has switched political parties and has proposed relatively flat state budgets. Today, the state is enjoying record revenue surpluses, making the moment ripe for reform.

Given the recent trend toward less burdensome tax policy, at least in the red states, West Virginia doesn’t have to reinvent the wheel to make tax reform a reality. Lawmakers can learn from the successful strategies implemented elsewhere to craft the best strategy for the Mountain State. They can look west to Kentucky, where reform was accomplished through a combination of broadening the sales-tax base and reducing the already-flat personal-income-tax rate. They can look southeast to a decade of reform in North Carolina that has led to broadened individual, corporate-income, and sales-tax bases with flattened rates. They can also look farther south at Mississippi’s strategy of simplifying the income-tax structure by moving to a single flat rate. There are a number of good precedents for West Virginia to follow.

In this year’s State of the State Address, Governor Justice proposed a 30-10-10 plan to cut the personal-income tax by half over the next three years. Rates would be cut, across the board, by 30 percent in the first year and 10 percent in each of the following two years. The West Virginia House of Delegates wasted no time in this year’s legislative session advancing the governor’s proposal and passed it from the chamber on January 18. Early reactions from the West Virginia Senate suggest that the governor’s plan goes too far for some in the statehouse. On February 8, however, the West Virginia Senate unanimously proposed a plan that would cut the personal-income tax rate by 15 percent and reduce other taxes on property.

Both houses are controlled by the GOP. The reason for the difference between the two is the senate’s preference for a more cautious approach. But there’s a good case to be made that what passes for caution is less than the state needs. The time is now for West Virginia to embark on a new venture in transformational policy reform by reducing the personal-income tax.