Personal income tax repeal facing legality questions

The single-referenced bill now sits in the full House of Delegates chamber. It was not up for first reading Tuesday. House Speaker Roger Hanshaw, R-Clay, said his caucus generally would love to provide tax relief, but the bill must adhere to federal guidelines.

Much of the budget surplus Gov. Jim Justice has championed in recent weeks comes from federal coronavirus relief funding — some of which is tied to provisions that disallow states from using the money to enact permanent tax cuts.

“As soon as we’ve done that, we’ll be able to consider whether we can pass the bill,” Hanshaw said Tuesday.

During the 2021 legislative session, the House dramatically slammed the door on Justice’s proposed income tax cut bill, which would have repealed the tax completely, with all 100 delegates voting against it. That bill also called for raising taxes in other areas to offset the cuts.

Hanshaw said Tuesday that Householder’s bill likely presents a better path for such a plan to move forward.

“I think this is a much more measured approach,” he said. “(It) lets us plan for longer-term fluctuations in revenue as we go.”

A spokesman for the governor did not respond to an email Tuesday inquiring about Justice’s position on Householder’s bill, or whether he prefers the model he championed last year.

Much of the criticism levied against Justice’s bill can be carried over to this plan, said Sean O’Leary, senior policy analyst with the West Virginia Center on Budget & Policy. In a report issued Monday, O’Leary wrote that the bill would cost the state an estimated $264.5 million in revenue in its first full fiscal year.

The personal income tax represents about 45% of the state’s general revenue fund. Justice proposed several tax increases, or the reimplementation of taxes, last year to offset the lost revenue — with the sales tax, tobacco tax, soda tax, severance tax and food tax all eyed for possible adjustment — before the bill was shot down. O’Leary said Householder’s bill borrows some of the governor’s provisions, in terms of using one-time surpluses for a permanent tax cut, but it’s not comparable in this area.

“For whatever flaws the governor’s plan had, it at least had the income tax going down and a bunch of other taxes going up to at least partially replace that revenue loss, where this one just has the surpluses, which go away as soon as you use them,” he said.

West Virginia’s progressive personal income tax system ensures that high-income earners pay a larger share than low-income workers. A repeal would disproportionately benefit the wealthy. Data from the policy nonprofit’s report shows that, with the bill’s initial tax cut, people earning $20,000 to $55,000 would save less than $100. A person earning more than $443,000 a year would save $3,880.

“On average, the wealthiest 20 percent of West Virginians would receive 70 percent of the initial tax cut, with the wealthiest one percent of West Virginians receiving 16 percent of the tax cut,” the report reads.