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West Virginia Temporarily Averts Medicaid Crisis, But Income Tax Cuts Threaten Future Funding

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West Virginia temporarily avoided a health care funding crisis after Gov. Jim Justice demanded legislators restore funding for the state’s Medicaid program. Lawmakers initially slashed Medicaid appropriations by $147 million, saying the state faced "fiscal uncertainty” following passage of one of the biggest tax cuts in the country. They reversed course during a special session held this month.

However, the reprieve is likely to be short-lived because the legislature included a provision in the appropriations bill that creates a new funding cliff in March 2025. Nearly 30 percent of West Virginians are enrolled in Medicaid. If the legislature does not maintain appropriations, state officials said they will be forced to cut enrollment, reimbursement rates, or critical services that families use, including prescription drugs, substance use treatment, physical therapy, and disability programs.

This year’s scramble is a harbinger of worse things to come. West Virginia is expected to see major decreases in revenue after enacting a sweeping personal income tax cut that could cost more than $800 million annually starting in 2025. The tax cut law tilted the tax code further toward the wealthy, with the top 20 percent of households receiving nearly $2 out of every $3 in tax cuts. The top 1 percent of filers (those making $467,000 or more) will get around $10,000 apiece, while the bottom 20 percent of filers (those making under $19,000) will receive just $21 per year on average. Meanwhile, the revenue loss could grow over time, because the law includes new triggers that could eventually eliminate the income tax altogether.

If the state continues marching toward income tax elimination, the tax code will only become more lopsided. Phasing out the income tax would also obliterate the state’s main funding stream not only for Medicaid but also for other vital public services, including schools and universities, community health programs, and various anti-poverty efforts.

West Virginia’s tax cuts risk immediate harm and will hamstring the state’s long-term potential by sapping revenues that could have been used to confront challenges such as declining infrastructure or child poverty. For example, lifting all poor West Virginia families with children above the poverty line would cost about half as much as the recent tax cut.