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Justice’s Tax Plan is Bold, But is it Smart?

Say this about West Virginia Governor Jim Justice: He goes big.

Justice opened the 2021 legislative session by proposing the elimination of the state income tax.

That is a heavy lift.

For this fiscal year, state income tax collections are expected to reach $2.2 billion, out of a $4.6 billion General Revenue Budget. That is equal to 47 percent of the entire state budget.

Justice wants to eliminate the tax in stages, starting with cutting the income tax in half for most and by one-third for wealthier West Virginians.  The lost revenue would be made up with a series of other tax increases.

The sales tax would rise from six percent to seven-and-a-half percent. Sales tax exemptions on professional services would be eliminated.  Energy production would be subject to potentially higher severance taxes based on market conditions.  Taxes on tobacco and soda pop would rise.  Also, the highest earners would be subject to a wealth tax.

Additionally, Justice wants state spending to remain flat for the next three years.

The Governor believes economic growth and budget surpluses would enable the state to take the income tax the rest of the way down to zero.

“This an opportunity beyond all comparison,” Justice said in his statewide address.

Well, maybe.

Justice believes West Virginia’s proximity to northeastern population centers will make it an ideal destination for people trying to avoid a state income tax.  The Realty.com Network said taxes are a consideration for families who are relocating.

“Whether you are looking for a place to retire or simply hoping to save money, you may want to consider moving to a state that doesn’t impose an income tax,” the website reported.

However, the great unknown is whether enough people would move here, or stay here, to generate the kind of economic growth necessary to offset the lost revenue.  West Virginia is not the only state trying to attract people, and whether a state has an income tax is only one of the considerations when deciding where to live and work.

Middle and higher income West Virginians would benefit the most from the plan. They pay a higher percentage of their income—6.5 percent—in taxes.  About 600,000 West Virginians who filed returns in 2019 had zero tax liability, so they would see no change.

However, those same people shop, in some instances use tobacco, use professional services such as a lawyer, a dentist or a physical therapist.  They would pay more taxes under the Governor’s plan.  Sales taxes typically take a larger percentage of income from low income families than those at the middle and higher levels.

Elimination of the state income tax will likely be the biggest issue of this legislative session. We are just getting started on this debate, and we still do not have all the details.

Governor Justice’s enthusiasm is admirable, and West Virginia needs leaders who imagine the untapped potential of our state. But a pitch this big with so many implications cannot ride on a wing and a prayer. West Virginians need to know much more about what they are getting into.

 

 

 







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