Morrisey banking on future wage increases, inflation to pay for his income tax cuts

Currently, Morrisey’s proposed budget includes only a 5% tax cut. He has vowed to negotiate with the Legislature to get the other 5%. But in the days following the release of his budget, both Republicans and Democrats criticized the plan. 

The 5% tax cut will cost the state about $125 million, state Budget Director Mike McKown told lawmakers. 

But despite the loss of revenue, Morrisey’s budget for next year balances. 

One move cuts more than $100 million from the Department of Human Services — which pays the bill for Medicaid — and another $32 million from a Department of Education fund that pays for the state’s teacher’s retirement plan.

Medicaid is the health insurance program that serves the state’s neediest residents, nearly one-third of all West Virginians. And about 18,000 teachers count on the teacher’s retirement plan.

To pay those bills, he plans to use surplus funds, which is money left over from the current budget year. Taking into account increases in other parts of the budget, the total amount freed up from shifting the monies adds up to enough to cover the tax cut. 

Tax analyst: Money shift ‘Sends up the alarm bells’

Sean O’Leary, a senior policy analyst with the West Virginia Center on Budget & Policy, said the shifts in money are highly unusual.

“That sends up the alarm bells that they're using this to help pay for the tax cuts,� he said. 

The Governor’s Office said there are too many other increases and decreases in the budget for these specific financial moves to be directly tied to the tax cut. 

But O’Leary said the problem with using surplus money to balance the budget is that it isn’t guaranteed. 

Imagine you’re a roofer. A winter full of 60-degree days and clear skies means you can work and have extra money. 

Maybe you use the windfall to buy a new set of tires. Maybe you use it to buy a new television. Or maybe you use it to catch up on the electric bill. But what you can’t do is depend on it. 

Because next winter, it might be 20 below until March, and you’ll be laid off. 

“Taking one time money — maybe it'll be there next year, maybe it won't be there next year — to pay for an ongoing, permanent cost is just not good budgeting,� O’Leary said.

W.Va. tax dept: Rise in wages, inflation will grow revenue

The Department of Revenue is predicting that a rise in wages and inflation on the sales tax will actually grow revenues to eventually offset the tax cut. 

During budget hearings in the state Senate and the House, both the Department of Education and the Department of Human Services confirmed the money that has been shifted from surplus is for a regular, on-going cost. 

The Governor’s Office did not answer why it’s proposing using surplus dollars to cover these costs. 

“All funding sources available in early January 2026 were considered and utilized when developing the Governor’s FY 27 budget bill,� wrote Annie Moore, deputy communications director for the governor. “Had not all of the available surpluses been used, additional cuts to many programs would have been necessary.�

Delegate Vernon Criss, R-Wood, chair of House Finance, said his committee has no interest in the tax cut or using one-time money to cover it. Sen. Jason Barrett, R-Berkeley, chair of Senate Finance, could not be reached for comment. 

The tax cuts would result in some West Virginians keeping a large chunk of change in their pockets. O’Leary said for top earning households, it would be $2,300. For the poorest West Virginians, it would be only $4.