The nation’s labor force participation rate has been falling for decades. While there has been a bounceback since the pandemic cratered the labor force, the rate is still five percentage points below where it was at the turn of the century. That equates to 12 million people opting out of the labor force.

Perhaps no state has embodied this problem more than West Virginia, with a labor force participation rate of 55 percent, well below the national average. This has been a major contributor to some of the problems plaguing the state.

West Virginia is looking to push back with major tax reform aimed at boosting its labor environment. The income tax is a direct tax on work, and research has shown that a lower income tax rate can lead to job and wage gains across income levels.

Knowing that, West Virginia has embarked on a plan to completely eliminate its state personal income tax. In 2023, West Virginia passed a tax cut that reduced its income tax rate from 6.5 percent to 5.12 percent, a 21 percent cut in a single year. A mechanism was also put in place to further reduce the rate based on revenue collection growth in future years. Those revenue targets were hit last year, resulting in an automatic cut, but the lawmakers decided to add to that with an additional cut of their own, bringing the rate down to 4.82 percent, a 6 percent reduction overall. 

This puts West Virginia’s rate only slightly higher than Oklahoma’s, with a chance to go below Oklahoma’s rate with another tax cut if West Virginia’s revenue growth targets are met again.

West Virginia has taken note of the growth seen in other states that don’t levy an income tax rate and has decided to join them. It’s not the only state, however; Mississippi has also started down the road to eliminating its state income tax. And other states like Ohio, Louisiana, and Arkansas have made massive cuts to their penalty on work as well.