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6:06pm: Sportsline with Tony Caridi

Governor says W.Va. has little to lose by phasing out annual $2.1 billion personal income tax

Gov. Jim Justice has a question for the public about his proposal to phase out the state income tax.

“What if I’m wrong? What if nobody comes to West Virginia if we do this? What have we lost?”

Justice announced the income tax proposal during his State of the State address this week. The income tax brings in about $2.1 billion a year and represents about 43 percent of the state’s general fund.

Justice is pitching the income tax cut as a way to market the state as a place to stay or settle. He is envisioning West Virginia as the only state in the east without an income tax.

“West Virginia with that proximity and West Virginia with the economics we have today, we can do this,” Justice, a Republican, said today on MetroNews’ “Talkline.”

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming levy no state income tax. Two more, New Hampshire and Tennessee, don’t tax earned income.

“It is the single most important thing that has the most sex appeal that you could have,” the governor said.

Richard Lindsay

Members of the state Legislature will be debating the income tax proposal over the course of the next 60 days. Justice has suggested his proposal is just a starting point and says he is open to tweaking it.

Democrats are already expressing skepticism.

“I do find it hard to believe that most West Virginians will see a net relief in their taxes,” said Senator Richard Lindsay, D-Kanawha.

Doug Skaff

House Minority Leader Doug Skaff, D-Kanawha, said Justice’s outline has a lot of holes.

“This is not a decrease in taxes. This is a tax shift,” Skaff said today on “Talkline.” “The miracle is going to be how do you balance a budget when you have a $2.5 billion hole in it.”

Skaff summarized, “This does not add up.”

The governor proposed making up the difference with several additional steps. But almost every one brings up additional questions:

— He proposed an initial step of cutting the income tax for all residents except for the highest earners. “You cut theirs by a third, but you cut everybody else by half,” said Justice, who did not define those income levels.

— Justice, whose family has coal holdings, proposed a tiered system on oil, gas and coal. This is a revisitation of a concept Justice backed in 2017. When profits are up, under the plan, companies would pay more. When profits are down, they would pay less. Justice did not say how this might affect overall state revenue collections.

— He proposed raising the sales tax by 1.5 percent. Right now the sales tax is 6 percent.

— Justice proposed adding sales tax on cigarettes and soda “in trying to make us healthier and better — and that could be a source of revenue for us.” He didn’t specify how much.

— He proposed taxing professional services, but didn’t say which ones or how much. That could include economic sectors such as legal representation, accounting services, advertising, hair care or contracting services.

— He proposed a wealth tax — “a tax on those that are very, very well to do that can pay just a little bit extra.”

Finally, Justice acknowledged cuts would be necessary, describing about $25 million. “The cuts, in my opinion, would be very miniscule. You do not need to cut to the bone, but you do need to make some cuts.” He did not say what those would be.

Justice, speaking today on “Talkline,” described those as relatively small changes.

“We have raised the consumer sales tax one and a half percent. And the only other thing we’ve really done to the average, everyday person is we’ve said you pay a little bit more on sodas and you pay a little bit more on to cigarettes — which, both we need to decrease and we need to decrease substantially.

“From our natural resources, all we’ve asked is when you’re surging ahead and doing absolutely great and profits are very, very, very large, we ask you to pay just a small fraction more. Our professionals have needed to be paying these taxes for a long, long, long time. Other than that there is no pain.”

The governor concluded the starting point of cutting the income tax by half is easy as that. “The downside is zero.”

Ryan Maness, senior tax analyst at MultiState Associates, a state and local government relations company, chimed in that such a major change to tax policy is unlikely to be that simple.

“All policies have tradeoffs, and hiking the sales tax/taxing professional services isn’t a minor thing as he seems to be implying,” Maness replied to the governor’s comments.

He followed up to describe unintended consequences.

“These taxes can create significant burdens to businesses to comply with, they often end up increasing prices for consumers, and most economists and public finance experts agree that taxing professional services (which the governor called out) is bad policy,” Maness said.

“West Virginia isn’t the first state to go down this road and every other state that’s tried this have failed: they tried in Utah in 2019/2020 and it was so unpopular that there were massive protests and the longest serving state senator lost his primary.” That was Utah state Sen. Lyle Hillard, who had been sponsor of the tax plan that was overturned following a grassroots referendum push.

Kelly Allen

It’s really important for West Virginians to see the proposal as soon as possible and to have time to weigh in with their lawmakers on how this will affect them, said Kelly Allen, executive director of the West Virginia Center on Budget & Policy.

“Governor Justice said last night that there is no downside, and that simply cannot be true. There are winners and losers in every public policy decision, and raising the sales tax while slashing the income tax generally falls on low- and middle-income people,” Allen said.

Justice and other proponents of the plan have cited elimination of the income tax as a tool to encourage population growth. Senate President Craig Blair, R-Berkeley, has described a goal of increasing West Virginia’s population by more than 400,000 in the next ten years.

Justice, in the “Talkline” interview, described guidance from Senate Finance Chairman Eric Tarr, R-Putnam.

Eric Tarr

In his own interview, Tarr also suggested the income tax cut could result in population growth and economic improvements.

“It would make us the no income tax state,” Tarr said. Referring to West Virginia’s proximity to eastern population centers, he said, “This will be the state of states that have no income tax.”

Tarr suggested increased workplace flexibility, such as the ability to work from home, could make West Virginia an increasingly popular place to relocate. “We will drain Baltimore and D.C. Period,” Tarr said.

Part of Justice’s plan calls for holding budgets flat over the next few years. Tarr agreed with that approach. “This is where you could see government start to shrink some,” Tarr said. “When you hold a budget flat, they’re going to have to figure out how to improve efficiencies.”

Tarr suggested West Virginians would see little change in quality of government services, even with flat funding. He said restrained spending of the past few years has proven that point. “We are still being able to exercise the same level of services with government,” Tarr said.

It’s a $2.1 billion decision, but the governor says West Virginia might as well try.

“We have an opportunity here like we have never had here in West Virginia,” Justice said. “If we pass this one up, shame on us.”