February 13, 2021

Cutting state income tax a bad move for WV | Charleston Gazette-Mail

I write today with serious concerns about federal funds the state is anticipating and the harm that will come if financial decisions are made based on a reliance on these federal funds. I urge you to consider the long term ramifications of the proposal.

The total West Virginia budget is slightly more than $4.6 billion. Of that amount, $2.2 billion — nearly half — is dependent on the state income tax.

The income tax supports early literacy programs and schools, our health departments that are hard at work distributing the vaccine and veterans’ assistance programs. To eliminate that source of revenue without an equivalent, reliable replacement is a dangerous risk to take, particularly given the restrictions on pandemic federal funding.

We need to look no further than Kansas in 2012 when then-Gov. Sam Brownback argued that cutting the state income tax by 30% and completely eliminating the tax on select business profits would lead to a much needed economic stimulus for the state. That was not the case.

Over the next few years, Kansas saw only 4.2% private job growth while the rest of the nation averaged 9.4% private sector job growth. When the tax cuts did not lead to economic growth, state revenue was devastated.

That resulted in cuts to vital state programs. The tax cuts were such a disaster for the economic well-being of the state that the Kansas legislature reinstated the income and business taxes in 2017, just four years after they went into effect.

Last March, West Virginia received $1.25 billion in federal aid to offset the impacts of the COVID-19 pandemic. In the coming weeks, I expect Congress will pass another round of pandemic relief which might provide additional aid for state and local governments. But this is the last time any state will receive this federal aid. By next year, the stash of federal funds will be gone and we will once again be fully responsible for our revenue and expenses.

If the income tax is eliminated and the additional funding from the federal government stops, West Virginia will be left with a gaping hole in its budget. The state government will be forced to make hard decisions, like choosing to fund the Children’s Health Insurance Program or domestic violence prevention efforts, Promise Scholarship or community and technical colleges.

To make long term financial decisions based on temporary financial support from the federal government is not a decision that sets West Virginia up for long term prosperity.

As we look forward together and seek innovative ways to reinvest in our economy, grow our communities and attract new businesses, we must look beyond the current financial dynamics.

We have to think long term about how to create lasting economic change in West Virginia. That will require at times unpopular decisions and it is essential that we rely only on our own revenue as opposed to being dependent on handouts from the federal government.

By:  Senator Joe Manchin
Source: Charleston Gazette-Mail