West Virginia is considering three different approaches to eliminating the state income tax – the House’s proposal, the Senate’s proposal and Gov. Jim Justice’s revised proposal.
The governor’s plan would enact changes more quickly, but would require future action to fully eliminate the income tax. The House and Senate plans create a plan to fully eliminate the income tax with one bill, but take a slower approach to reaching that goal.
“Currently, the West Virginia Legislature is examining three separate plans to eliminate the personal income tax,” Jessica Dobrinsky, a policy development associate at the free-market Cardinal Institute, told The Center Square. “The three plans inherit different visions of control where the Governor’s focuses on a short-term executive-led decrease. The Senate and House plans lengthen the decreased time with a legislative-led [decrease].”
Justice’s revised plan would immediately slash the state income tax by 50%, which is more modest than his original plan to immediately slash it by 60%. The plan does not account for the final half of the income tax, but rather it presumes future legislation to pass to eliminate the remainder of the tax.
The governor’s plan would increase the sales tax and other taxes to make up for some of the losses to the income tax. Currently, the income tax accounts for half of the state’s annual revenue. The plan would include more than $998 million in tax cuts and slightly more than $812.5 million million in tax increases. Overall, it would cut overall taxes by about $117.6 million.
“Most notable in the Governor’s plan is that the tax is decreased immediately by 50%,” Dobrinsky said. “Still, it appears that a second piece of legislation would be required to eliminate the final 50% for total elimination of the tax.”
House and Senate plans would set a path to fully eliminate the tax, but would not have a large cut immediately like Justice has proposed. The House plan would reduce the tax by $150 million every year until the tax is eliminated, which could take six or more years. The Senate plan would reduce the tax by $300 million each year.
Both of these plans would broaden the sales tax base.
Session is set to end Saturday, which means lawmakers have a short time to establish an agreement if they want a new tax plan to be enacted this year.