Gov. Jim Justice on Thursday unveiled the long-awaited details of his proposal to cut the state personal income tax — a plan that would use more than $900 million a year in tax hikes to partially offset a $1.07 billion reduction in income tax revenue.
Justice, who began advocating for the income tax cut shortly after winning reelection last November, revealed a plan that would cut income tax rates by 60% —reducing tax brackets that range from 3% to 6.5% based on income levels to 1.2% to a maximum of 2.6%.
That would reduce annual income tax revenue from about $2.1 billion a year to about $1.03 billion.
In a statement Thursday, Justice called it the “last big piece of the puzzle” needed to spur the state economy and bring population growth.
“We have all the building blocks in our state,” Justice said. “We have an economy that’s truly on the launch pad, some of the greatest people you’ll find anywhere, who are smart, kind, faith-based, and hardworking people, along with four of the best seasons on earth with more natural beauty than you could possibly imagine. But now we need to make a big move to put us over the top.”
To make up $900 million of that revenue loss, Justice is proposing steep hikes in a variety of taxes, most notably including an increase in the state consumer sales tax from 6% to 7.9% — a nearly 32% hike.
Additionally, a number of cities impose municipal sales taxes of up to 1%, which would make the 8.9% combined sales tax among the 10 highest in the U.S.
Coupled with the proposed elimination of sales tax exemptions for a variety of professional services, computer hardware and software, advertising, health and fitness club memberships, lottery tickets, among other items, the increased state sales tax would bring in an additional $655 million a year.
Justice is also proposing steep hikes in a variety of other taxes, including taxes on beer, wine, liquor, cigarettes, other tobacco products, e-cigarettes and soft drinks, as well as a tiered severance tax plan that would impose higher taxes on coal and natural gas as prices for those natural resources go up.
Those proposed tax hikes include:
- Cigarettes, going from $1.20 to $2.25 a pack, a 187% increase that would raise an additional $70 million.
The tax for other tobacco products would go from 7% to 19.5%, to raise $8.2 million a year.
- Soft drinks, from one cent to six cents per bottle or can, or up to 24 cents on a two-liter bottle, to raise $62.5 million.
- Beer, from 18 cents to 94 cents a gallon, a 530% increase, to raise an additional $26 million a year.
That would be the second-highest beer tax in the U.S., behind Alaska, and would be significantly higher than neighboring states, where beer taxes are as low as 8 cents a gallon in Kentucky and Pennsylvania.
- Wine, from $1 to $4 a gallon, a 400% increase, to raise $5.5 million.
- Liquor, where the wholesale markup would go from 28 percent to 39.25 percent, a 40% increase, to raise $5.4 million.
- The steepest tax hike would be for e-cigarette liquids, with a proposed 10-fold increase in the tax, from the current 7.5 cents a milliliter to 75 cents a milliliter. That would bring in an additional $8 million a year.
Justice’s plan also proposes a luxury tax on certain high-priced ($5,000 and above) items that are to be specified at a later date to raise $20 million a year.
The proposal includes $52 million of rebates of between $50 and $350 per person for individuals making less than $35,000 a year, to make them whole and offset potential increased tax burdens under the plan.
Justice’s announcement of the plan states: “Gov. Justice’s plan puts more money in every West Virginian’s pocket. For the lowest income earners, rebates will be offered so these individuals are not negatively impacted by the changing of certain taxes.”
The funding source for the rebates was not immediately clear in materials provided by the governor’s office.
Meanwhile, the West Virginia Center for Budget & Policy called the plan a tax shift that will be a windfall for higher income West Virginians, while shifting taxes to lower- and middle-income families, while leaving a $185 million a year shortfall in future state budgets.
In a statement, the center said, “Gov. Justice’s plan is as regressive as we feared it might be. While it gives huge tax cuts to the wealthiest West Virginians, the tax shifts would fall most heavily on the vast majority of West Virginians who are low- and middle-income. The plan also fails to fully offset the revenue losses of reducing the personal income tax, which means inevitable cuts to public services in the midst of an ongoing pandemic.”