West Virginia weighs income tax cut to stem population loss

National News

FILE – This May 9, 2012, file photo, shows the Grandview State Park overlooking the New River Gorge National River in Grandview, W.Va. The state offers numerous trails for hiking and other spots with scenic views. With West Virginia poised to lose another congressional seat due to its long, steady population decline, Republican lawmakers are convinced a massive tax cut is the key to reversing the trend. (Kenny Kemp/Charleston Gazette-Mail via AP, File)

CHARLESTON, W.Va. (AP) — With West Virginia about to lose another congressional seat because of steady population decline, Republican lawmakers are convinced a massive income tax cut is the key to reversing the trend. But figuring out how to do that without harming the state’s most vulnerable or punching a massive hole in the budget has proven complicated.

An effort to forge a compromise on how to pay for the tax cut hit a major roadblock Friday.

On the weekend that the legislative session is set to conclude, Republican Gov. Jim Justice said the House of Delegates won’t take up his bill, which narrowly won approval in the Senate.

“It surely closes the door for now,” Justice told reporters Friday, adding he may call legislators back to take it up. “I heard the door slam really, really hard when the House said we’re not taking it up.”

Although the United States doubled its population over the past seven decades, West Virginia headed in the other direction. Tracking closely with the long-term decline of the coal industry, it is the only state in the nation with fewer residents than in 1950. Figures from the 2020 U.S. census, expected to be released later this month, are projected to reduce West Virginia’s seats in the U.S. House from three to two.

For weeks, Justice and other Republicans said a pandemic that has devastated some state budgets highlighted their state’s positive side. They say its soaring mountain vistas, wide-open landscape and low cost of living have given the state a once-in-a-generation shot to draw new residents through the allure of lower taxes.

“The whole world is looking at us right now,” Republican Gov. Jim Justice said this week. “There is a giant urgency.”

Justice blasted House Republicans for effectively killing the bill. He vowed to launch a “road show” to barnstorm the state advertising his income tax proposal. He said he may call a special legislative session later this year.

Despite one-party rule in the state, Justice has struggled to convince some of his fellow Republicans what a big tax cut should look like. Many say a state that has long faced economic hardship should be careful about raising its sales tax or taking other steps that could harm its most vulnerable people.

Critics had said leaders are embarking on a population growth experiment that will likely lead to cuts to education and social services in one of the country’s poorest states. The latest plan approved by the Senate after weeks of wrangling would cut the income tax by 40% and raise the sales tax from 6% to 8%, which would be the nation’s highest. Justice originally sought a 60% cut to the income tax.

It also includes a bevy of tax increases for energy companies and the service sector. A controversial tax on groceries was scrapped from the Senate bill after the governor called it a “showstopper.”

In an interview before his bill stalled, Justice said the state is in a position to gain from an income tax cut because of the state’s proximity to the east coast and population centers.

“And if you don’t think this will drive population to the state of West Virginia, you’re completely out of your mind,” Justice said.

West Virginia’s population has declined 11% since 1950, when it peaked at just over 2 million residents and its economy hummed along on coal mines.

Experts say there’s no consensus on whether low taxes drive population growth.

“There is no credible evidence that shows this,” said Kim Rueben, the director of the state and local finance initiative at the Urban-Brookings Tax Policy Center. She said taxes can be one factor driving businesses and residents, but it’s not the only one.

“We’re putting a lot of our eggs in that basket, that this will grow our population, that growth will help pay for” the cuts, said Sean O’Leary, a senior policy analyst at the West Virginia Center on Budget & Policy, which has been critical of the proposal.

Jared Walczak of the Washington-based Tax Foundation, a right-leaning think tank, points to nine states that have no income tax, saying “there is a real appeal.”

But he added that “there’s no such thing as a silver bullet in taxation either. The goal is to grow the economy.” And he cautioned against overly rosy estimates: “It’s sometimes easy to get carried away in what the effects will be.”

On Good Friday, about two dozen people outside the state Capitol in Charleston held signs and spoke against the legislature’s proposals, which float cuts to higher education.

“It is immoral, inhumane and impermissible to line our pockets with the guts of the poor,” said the Rev. Ron English, president of the Charleston NAACP.

The income tax draws in about 40% of the state’s revenue, leaving the GOP supermajority in the statehouse mired in disagreements about how to balance future budgets. More-conservative members wanted deep cuts to spending and opposed any increases to taxes on energy companies.

A businessman with investments in coal, Justice has said companies can afford to “throw a few extra pennies,” while critics in his party said the declining industry has weathered enough pain.

The Senate passed its bill 18-16 late Wednesday after five Republicans joined all 11 Democrats in voting against it.

A former Democrat, Justice has balked at cutting taxes if it means putting “an incredible burden back on those who are struggling the most.”

But a luxury tax on any item costing at least $5,000 championed by the governor did not make it into the Senate version. Republican Senate President Craig Blair had initially indicated he was open to the idea at a compromise meeting on Monday.

Blair represents Berkeley County, a bright spot of growth in the state’s eastern panhandle. Its largest city, Martinsburg, is about 1.5 hours from Washington, D.C., and the county borders both Virginia and Maryland.

Blair and other West Virginia Republicans have visions of enticing new residents — and their spending habits — to settle just a little farther west. And their hope, if they can negotiate a new compromise, is that the prospect of paying little to no income tax will be just the thing to lure them there.

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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