West Virginia’s $1 billion surplus sparks pitched tax battle

CHARLESTON, W.Va. — West Virginia’s Republican Senate leaders have answered the call to dramatically slash the state income tax by proposing to shave 15% off the rate at a cost of about $600 million, or more than half the state’s budget surplus.

GOP senators described the plan as a safer, more measured way to cut taxes than the roadmap put forth by Republican Gov. Jim Justice and approved last month by the West Virginia House of Delegates. That legislation would slice the personal income tax by 30% the first year and 10% in each of the subsequent two years.

Surging energy prices, led by the war in Ukraine, pushed the state’s budget surplus to $1.3 billion at the end of last fiscal year in July, as a tax on coal, natural gas and energy extraction filled the coffers. State leaders have said they expect that revenue to continue increasing. Critics of the proposed tax cuts warn that energy-related revenue is far from guaranteed, with the West Virginia Center on Budget and Policy having said such collections can be “highly volatile.”

Center Executive Director Kelly Allen has also said the state’s surplus has built as the state failed to address “pent up needs,” like public employee shortages that plague state agencies. The state has one of the highest poverty rates in the nation, according to the U.S. Census. After senators announced their plan Wednesday, Allen wrote on Twitter: “Suspending rules to pass a very significant tax bill when most haven’t even seen the legislation yet doesn’t feel deliberative or responsible.”

Republican Senate President Craig Blair said he and other members of the supermajority planned to fast-track the proposal, which would return $600 million of the state’s $1 billion budget surplus to taxpayers. He said he expected it to come up for a Senate vote later on Wednesday.

“Our goal is to be able to move this on through and get it done,” Blair said.

It’s unclear how the proposal will be received in the House, where leadership has embraced Justice’s more extensive tax cuts. Justice and Senate GOP leadership have clashed over tax cut proposals for nearly two years.

Immediately after the Senate announced the plan, Justice said “it’s got a lot of really good stuff in it,” but did not provide detailed feedback.

“I don’t want to come out and start coming with negotiations and stuff like that until we look a little deeper into the plan,” he said.

Justice has described his proposal as a “West Virginia tsunami” — a first step toward eliminating the personal income tax altogether. He also wants to eliminate the state’s vehicle tax.

In November, West Virginia voters rejected a proposed constitutional amendment that would have given state lawmakers the ability to eliminate a business and inventory tax along with the personal property vehicle tax. Justice, who prefers cutting the income tax instead, toured the state urging voters to reject the November ballot measure, saying it could “harm schools, cities and counties and give companies large tax breaks.”

The Senate’s new plan would start with a 15% personal income tax cut across brackets, but it doesn’t necessarily stop there. Senate Finance Chairman Republican Eric Tarr said the bill contains a trigger that will continue to cut the personal income tax as the state’s economy grows. If and when sales tax collections increase 105% over the previous year, residents would see a dollar-for-dollar reduction equal to the amount of increase, he said. There will be no increase in the sales tax rate.

“It creates a smoothing mechanism to safely bring down our income tax to zero,” Tarr said.

The Senate’s proposal also would provide tax rebates of varying sizes on cars, small businesses and for disabled veterans. Additionally, it eliminates the “marriage penalty,” in which married couples incur a higher tax rate for filing joint taxes.

Republican Majority Leader Tom Takubo called the plan a “safe” way to provide tax relief to “the vast majority of West Virginians.”

“We want to do so in a way that we don’t overspend but we don’t overstep, kind of get out in front of our skis and then get in a situation where we hurt anybody,” he said.