Next year, West Virginians will experience a significant income tax cut, thanks to revenue triggers in a 2023 law. Governor Jim Justice signed House Bill 2526, the West Virginia Property Tax Reduction Act, into law in March 2023, resulting in an income tax rate cut of about 21.5 percent across the board. This reduction is the largest in the state’s history.
The law also stipulates that if the fiscal year-adjusted general revenue fund collections from the immediately preceding fiscal year exceed the inflation-adjusted base year revenues, then the rates of personal income taxes would be reduced by the same proportion as the excess, subject to a cap of a 10 percent reduction in any given year.
As a result of this law, income earners of all levels and tax brackets will see a 4 percent reduction in their taxes starting January 2025. This reduction is expected to increase the returns to labor, leading to stronger economic growth in the future, especially given that West Virginia’s unemployment rate is slightly higher than the national average.
Despite a reduction in tax rates, tax revenues for the past fiscal year totaled approximately $5.7 billion, higher than the adjusted previous year’s $5.24 billion. This indicates that the tax cuts have not negatively impacted the state’s revenue collection.
West Virginia joins 14 other states that have cut income taxes this year. The recent tax relief in West Virginia has already provided $1 billion in tax savings, a significant boost to the economic well-being of a state that has the second-lowest per capita income in the country.
Given the state’s recent receptivity to tax reform, this may be the perfect time for West Virginia to improve its 22nd-place ranking in the Tax Foundation’s State Business Tax Climate Index. The state could achieve this not just by lowering its taxes but also by reducing its tax complexity.
West Virginia has shown real initiative to emerge out of the shadow of other, more business-friendly states. Policymakers now have the chance to follow them up with other reforms that not only reduce the tax burden on their citizens and businesses but that also put the state on a sustained-growth trajectory.