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Officials considering Gov. Jim Justice’s proposed $5.22 billion general fund budget will also need to consider several variables. These could have a huge impact, with officials predicting a slight decline in state revenue over the next few years.
One factor is that it could prompt West Virginia to further reduce personal income taxes. The state introduced a 21.25% cut this year in a package that includes further automatic cuts under certain economic circumstances. The first trigger could occur this year, and authorities are already assessing how big the cuts will be.
Additional factors include tax collection quirks that may be affected by the calendar.
First, it refers to a new state law, often referred to as SALT, that provides a workaround to the federal $10,000 cap on state and local tax deductions. This workaround allows partnerships and other pass-through corporations to pay West Virginia income taxes as corporations, rather than shifting the tax liability to individual owners.
This could result in higher upfront tax collections and higher tax credits and refunds in the second half of the financial year.
Another potential driver of tax collection is the motor vehicle property tax deduction that went into effect on January 1st.
So while state revenue estimates, a key aspect of budget planning, aren’t exactly precise, this year some consideration should be given to which direction the wind is blowing. State officials say tax collections have been stable so far this year, but there’s still six months left.
An earnings presentation made to the Finance Committee this week showed projected earnings growth of -1.5% from 2023 to 2029.
“The reason for the minus 1.5 is because we have embarked on a multi-year tax reduction plan,” Deputy Revenue Secretary Mark Muchau said in a revenue briefing to senators on the Finance Committee.
“The first tax reduction phase is 21.25% this year. Property tax deductions will begin next year in FY25, meaning the multi-year tax reduction will delay this number.”
This compares to an 8.1% state revenue growth rate from 2019 to 2023.
The trigger for another cut in personal income taxes would be to measure general revenue collections minus retirement tax collections in a fiscal year compared to an inflation-adjusted base year of 2019. If the collection is ahead of the base year, the trigger is activated.
“If revenue grows faster than this projection, there will be a trigger,” Muchau told senators. “If the growth is slow, there is no trigger.”
Mucho said the trigger will be measured in August this year. If successful, the cuts would take effect from January 1, 2025, several months into the next financial year.
The reduction under this trigger could be as much as 10%, but the state’s acting revenue secretary believes that percentage is likely to be significantly smaller than next year’s reduction.
“It’s a little early to calculate that, but right now we think it could be a small to maybe a small tax cut, but we think it could be a 1-2% momentum.” It’s a little early in the fiscal year to determine that, but it could be a small tax cut,” Acting Revenue Secretary Larry Pack said on Metro News’ “Talkline” last week.
Pack said the gradual approach was intentional.
“The trigger was set very conservatively to give Congress and future administrations a chance to really think about it. They could accelerate the trigger or reverse it at any time,” Pack said. he said.
These factors make it difficult to budget with confidence, said Kelly Allen, executive director of the progressive West Virginia Budget and Policy Center.
“Due to the delayed implementation of the 2023 tax bill and the timing issues created by the SALT bill, we still do not know the full impact it will have on the state budget. Property Taxes The tax refunds and additional taxes could result in a total revenue reduction of up to $400 million in 2025,” Allen said.
“And while revenue officials expect to end the fiscal year $10 less because the SALT avoidance bill increased personal income tax collections in the first half of the year, lawmakers say the personal income tax cut did not reduce revenue. You may be under the mistaken impression that “-15 percent compared to income tax collections for fiscal year 2023.” ”
As a result, she said, there was uncertainty.
Senate Finance Chairman Eric Tarr said states need to carefully consider how the potential for additional individual tax cuts will affect spending proposals.
“If we are to deliver on the tax cuts we promised West Virginians, we need to pay close attention to future spending related to tax cuts,” Tarr (R-Putnam) said on Metro News’ “Talkline.” Told.
He continued, “Revenues are earned that are triggered in some way. Our revenue is reduced by personal income tax collections, which represent more than $2 billion of our budget.” , once you start causing that, you can’t increase spending while reducing it.”
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