CHARLESTON — In the midst of a pandemic and an economic recession, politicians in a number of states, including West Virginia, are looking at cutting income taxes this session, panelists in a discussion hosted by the West Virginia Center on Budget & Policy said Thursday.
“It’s inexplicable to us. It’s almost like Kansas didn’t happen,” said Kelly Allen, executive director of the West Virginia Center on Budget & Policy.
She was referring to what has come to be known as the Kansas experiment, a 2012 law that sharply cut income taxes in that state in what then-Gov. Sam Brownback pledged would be a “shot of adrenaline into the heart of the Kansas economy.”
Instead, job growth in Kansas lagged behind neighboring states and national averages, and the loss of revenue resulted in catastrophic budget cuts to public education, higher education, roads and infrastructure, and other public services. In 2017, the Kansas General Assembly repealed the tax cuts and enacted tax increases. Additionally, in 2018, the heavily Republican state elected a Democrat as governor.
In West Virginia, Gov. Jim Justice promoted income tax reductions in his 2020 re-election campaign. On Wednesday, newly elected Senate President Craig Blair, R-Berkeley, said rolling back income taxes will be a legislative priority for the 2021 regular session.
Allen noted that income taxes account for 43% of the state’s general revenue budget, topping $2 billion a year.
“We either eliminate $2 billion a year of education, health care and other public services or we shift those taxes to others, likely through increases to the regressive consumer sales tax,” she said.
Allen said making up $1 billion of that lost revenue through sales taxes would require hiking the state sales tax rate to 10.3% — the highest in the nation — and that would still leave legislators facing a $1 billion annual budget deficit.
Blair said Wednesday he believes that reducing income taxes will attract 400,000 new residents to the state over the next decade — something Michael Leachman, vice president for state fiscal policy with the Center for Budget and Policy Priorities, disputed Thursday.
Leachman said research shows that jobs, family and quality of life play a much greater role in those relocation decisions. “Very few people and few businesses make decisions on where to locate based on taxes,” he said.
Erica Williams, vice president for state fiscal policy for the Center for Budget and Policy Priorities, noted that while advocates of income tax cuts point to no-income-tax states such as Texas and Florida, the reality is much different.
“We have several states around the country that do not have income taxes. Some are highly populated, but a lot are not,” she said of claims that people are moving to no-income-tax states. “We haven’t seen that claim borne out in Wyoming or Alaska.”
Low-income-tax states are not necessarily low-tax states, she added, since those states generally make up lost tax revenue though higher sales tax and property tax rates.
Leachman said talk of income tax cuts come at a time when states have yet to recover from the recession of 2007-09. Faced with the combined loss of $300 billion in tax revenue during the recession, states cut funding to public education, higher education, roads and infrastructure, and other public services, he said.
States reduced public health capacity, including cutting budgets for local health departments by an average of 18% — cuts that are hampering current efforts to conduct COVID-19 testing and vaccinations, Leachman said.
In the 2017 regular session, legislative efforts to roll back the state income tax collapsed over multiple concerns, including projections of $1 billion-plus budget deficits. Allen said she’s hopeful that will happen again this year, particularly as newly elected legislators learn the ramifications of the legislation.
“It is incredibly critical that constituents get in touch with their lawmakers and make sure they are aware of the gravity of the vote they’ll be making,” she said.
Panelists met telephonically with members of state and national news media Thursday.