Budget Expert: Morrisey’s Tax Cut Proposal Is ‘Shocking’

In his State Of The State address last month and again a few days ago, Gov. Patrick Morrisey made a case for a 10% cut in state income taxes. He proposed a 5% cut in his budget, and has challenged lawmakers to find another 5% to cut. 

It’s a critical part of the state’s economic future, Morrisey has said, a pathway to attracting lucrative new businesses and jobs. 

But Kelly Allen, executive director of the West Virginia Center on Budget and Policy, disagrees. She sat down with Assistant News Director Maria Young to explain why.

This interview has been lightly edited for clarity. 

Young: Obviously you know the governor has proposed a 5% state income tax cut in his budget, but is also hoping that the legislature will approve another 5% for a total of 10%. What is your reaction to that and the impact on the state of West Virginia? 

Allen: I find Gov. Morrisey’s pushing of an additional tax cut pretty shocking. We have a lot of pressing costs, a lot of cost growth, and things like the Hope Scholarship and Medicaid. We’re facing budget deficits in upcoming years, and we’re using one-time funds to pay for ongoing budget needs. So, you know, the money isn’t there for tax cuts if we want to meet the needs of our people and provide the public services that have been committed to people. 

Young: What one-time funds are you referring to specifically? 

Allen: In the governor’s budget, about $170 million of ongoing Medicaid costs are being proposed to be funded through a supplemental [appropriation]. So you know, typically, ongoing budget costs would be in the regular budget, so that’s the cost of the 5% tax cut right there, $170 million. 

Young: We’re also looking at some cuts in terms of what have been traditional federal funds that we’ve been able to count on historically that I think are largely going away. And I’m speaking specifically of Medicaid. The Rural Health Transformation fund makes up for a portion of that, but not anywhere close to the full amount, right? 

Allen: That’s right. So over the next two years, there are going to be a lot of changes phased in as a result of Congress’s One Big, Beautiful Bill. And a lot of those changes will hit individuals who rely on Medicaid and SNAP (Supplemental Nutrition Assistance Program). 

But to your point, a lot of it will impact the state budget. So a lot of it is shifting Medicaid and SNAP costs that are federal now onto the state budget. There’s a potential of tens of millions of dollars a year in new SNAP costs hitting the budget starting next year, as well as, I mean, hundreds of millions of dollars in losses in Medicaid funds. 

This seems very short-sighted to push a permanent tax cut that reduces our revenue when we are facing so much uncertainty around Medicaid and SNAP, which are programs that are important for the hundreds of thousands of people that rely on them in our state, but also for our economy. 

Young: There’s a big push to get people off of the Medicaid rolls, to get them gainfully employed in positions that provide health care. And so when the governor makes the case for this income tax cut, I think he’s also saying that [an] income tax cut is necessary in order for the state’s economy to grow. You lose the state income tax, but you attract businesses that bring in a lot of revenue for the state. 

Allen: Well, I think that’s a flawed premise as well. There is very little evidence available that income tax rates are a huge driver of business location decisions. There’s a wide body of research available that shows that the drivers of economic growth are things like public investments in education, educational attainment of the community, public transportation spending, as well as population growth, which I know is a goal of this. 

And the problem that we’ve seen in other states that have done deep tax cuts is that when these tax cuts undermine those things, undermine investments in education, undermine investments in infrastructure, that’s when they actually backfire. They don’t have the impact of attracting businesses and people to a place. 

There are a lot of things that are unmet needs right now. You know, I haven’t heard the governor mention unprecedented levels of public school closures across the state. These tax cuts would be coming at the cost of investments in those things that we know drive economic growth and we know are important to families and businesses.