Justice, West Virginia Lawmakers Reach Deal on 2% Income Tax Cut Proposal

photo by: W.Va. Legislative Photography

State Senate Minority Leader Mike Woelfel, D-Cabell, asks questions Monday about a compromise between Republican legislative leaders and Gov. Jim Justice for a personal income tax cut.

CHARLESTON — Gov. Jim Justice and the West Virginia Legislature appear to be moving toward a reduced version of the governor’s proposed personal income tax cut.

The House Finance Committee recommended House Bill 237, relating to the personal income tax, for passage to the full House Monday afternoon. The state Senate passed its version, Senate Bill 2033, in a 31-0 vote Monday afternoon, setting up a possible final vote today.

“Regardless of what the percentage is, we recognize that we have got funds available to give back to the citizens of West Virginia,” said House Finance Committee Chairman Vernon Criss, R-Wood, following Monday’s House floor session.

“I thank the governor’s staff for working with us to make sure we had room in future budgets to be able to offset where these tax cuts come from in a responsible manner,” said Senate Finance Committee Chairman Eric Tarr, R-Putnam.

Justice issued an amended proclamation earlier Monday with eight new bills, a concurrent resolution, and a change his proposal for a 5% personal income tax cut to a 2% cut.

Justice first called for a 5% personal income tax cut in July following the end of fiscal year 2024.However, some lawmakers expressed concerns over the last several weeks about the state general revenue budget being able to afford the loss of tax revenue beginning in fiscal year 2026 next July 2025.

During his weekly administration briefing last week, Justice signaled that he would be willing to accept less than the 5% personal income tax cut he proposed.

A 2% cut in personal income tax rates would return approximately $46 million to taxpayers when fully implemented. The tax cut would go into effect in January at the start of the 2025 tax year along with a 4% personal income tax cut due to the state meeting the requirements of a trigger mechanism and formula allowing for personal income tax cuts up to 10% every year. The 4% personal income tax will return approximately $92 million to taxpayers when fully implemented.

“I think our taxpayers are hurting,” said Department of Revenue Secretary Larry Pack to the House Finance Committee during testimony when asked why the tax cut is needed now. “Inflation has been absolutely crushing people, so we’re doing everything we can to help people and our taxpayers as quick as we can as long as we can do it in a prudent fashion.”

With the passage of House Bill 225, that will take the total percentage of personal income tax cuts since 2023 during Justice’s administration to 27.25% and return more than $626 million to taxpayers by fiscal year 2026. Personal income tax collections of more than $2.2 billion made up nearly 40% of the state’s $5.7 billion in general revenue collections in fiscal year 2024.

HB 237 would also delay the effective date of the next personal income tax trigger put in place by the 2023 tax reform package. When the Department of Revenue determines the next personal income tax cut in August based on the trigger and formula, instead of that tax cut going into effect in tax year 2026, it would go into effect in tax year 2027.

In order to pay for the $46 million loss in personal income tax revenue from the 2% cut, $19 million will come when a revenue bond is paid off soon. The remaining $27 million will come from cost savings ongoing from the reorganization of the Department of Health and Human Resources into the departments of Health, Human Services, and Health Facilities.

While the three-member Senate Democratic caucus voted for the bill, Senate Minority Leader Mike Woelfel, D-Cabell, raised concerns about passing a tax cut in an election year when a new governor and new legislature will take their seats next year. Justice is the Republican candidate for U.S. Senate, facing Democratic former Wheeling mayor Glenn Elliott.

“At the 11th hour, we’re going to find this money, we’re going to cut a tax, and we’re going to hamstring, it seems to me, the new governor…(Justice) won’t even be here,” Woelfel said. “There are a fair number of people in this room who are not going to be here in January…Why are we making the decision in October when we will reconvene in January?”

Other items on Justice’s second amended special session proclamation included: allowing funding for certain federally funded broadband expansion programs to come from the state Economic Development Authority; providing supplemental appropriations for West Virginia University, Marshall University, Concord University, Shepherd University, and New River Community and Technical College; providing $5 million for the Department of Health for statewide EMS program support; and providing $175,000 for the West Virginia State Police for repairs and refurbishment of helicopters.

Other added bills included: legislation transferring the powers and duties of the state Municipal Bond Commission to the State Treasurer’s Office; rules dealing with the issuing of refunding bonds and general obligation bonds; relating to fees and charges for municipality provided fire services; and a bill transferring funds from the State Treasurer’s Office to the Governor’s Civil Contingency Fund for additional funding for deferred maintenance at state colleges and universities.

One concurrent resolution added to the amended special session calls for honoring the late U.S. Marine Corps veteran and Gold Star Family advocate Hershel “Woody” Williams as one of two West Virginia statues in the National Statuary Hall collection at the U.S. Capitol Building.

Three bills completed legislative action Monday: appropriating $15.7 million to the Adjutant General’s office of the West Virginia National Guard for capital outlay, repairs, and equipment, the state Military Authority, and the Recruit WV employment program; appropriating $87 million to the Public Employees insurance Agency for its reserve fund to abide by State Code that requires PEIA to maintain a reserve of 10% of the projected plan expenses; and appropriating $13.7 million to the West Virginia School of Osteopathic Medicine for building renovations.