By ANDREA LANNOM
CHARLESTON, W.Va. — Three measures that would lower or eliminate the personal income tax are working their way through the House and the Senate.
And with a little less than three weeks before bills need to be on the floor, lawmakers hope they can get them out of committee this week.
On the House side, two bills go hand-in-hand dealing with income tax and sales tax. The bills would lower the personal income tax to a flat rate of 5.1 percent and lower the sales tax from 6 percent to 5.5 percent but “broaden the base” of things that can be taxed.
“These bills go hand-in-hand where over on the Senate side, they have it all as one,” said Delegate Eric Nelson, R-Kanawha, the bill’s lead sponsor.
The Senate’s bill would lower personal income tax to 2.5 percent and would start to phase it out in 2023, expiring completely in 2032, if certain ratios are met regarding the Rainy Day Fund compared to the General Revenue Fund. The bill also would create an 8 percent consumption tax.
The House bills were introduced March 10. House Bill 2934 would eliminate personal income tax brackets and would change the rate to a flat rate of 5.1 percent. If passed by the House and Senate, this would go into effect next year.
Nelson, who is the chair of the House Finance Committee, explained that collapsing personal income tax into one rate is addressed in a report from John Deskins, director of West Virginia University’s Bureau of Business and Economic Research and associate professor of economics, in a meeting last year of the Tax Reform Committee.
Nelson said the aim is to be revenue neutral, which means that it would not affect the $2 billion that comes in every year from personal income tax.
House Bill 2933 would reduce the rate of consumer sales tax, service tax, and use taxes.
It also would provide further reductions to the tax rate under certain circumstances and would eliminate certain exemptions. Those include rental cars by daily rental vehicle businesses, personal services, professional services, contracting services, day care centers, tuition for educational summer camps, memberships or services provided by health and fitness organizations and instructional services by music and art teachers.
It also imposes a tax on the sale of telecommunications services and eliminates the reduced tax rate for mobile home sales.
Delegate Riley Moore, R-Jefferson, is the lead sponsor. Southern West Virginia Delegates George Ambler, R-Greenbrier, Lynne Arvon, R-Raleigh, and John Shott, R-Mercer, are among the co-sponsors.
Moore explained under his bill, as opposed to the Senate bill, the food tax would not be put back into the consumer sales tax.
Both of these bills are pending before the House Committee on Finance.
“The bifurcation of these two bills is obviously advantageous for putting all the options on the table for the one bill, which will broaden the base,” Moore said. “And then being able to deal with Eric’s, which also looks to taxes in a more equitable, more fair way by going to a single rate of 5.1 percent across-the-board flat tax.”
Nelson described the two bills as a “more simplistic alternative” to the Senate’s version.
“They have done a heck of a job with the broadening aspects of the tax base and ultimately eliminating the income tax,” Nelson said. “There are other components to that that need sufficient time to analyze and debate and we only have three more weeks.”
Nelson said he is hopeful that they will be finished by crossover day.
“The bills have to be on the floor and for first reading by Monday the 27th,” Nelson said. “Next week is the only time we can get it in committee and get it out. If we don’t have a bill out by next week, technically, it dies.”
Senate President Mitch Carmichael also talked about tax measures happening in the Senate along with the progress on the budget.
“Tax reform is the most exciting opportunity for our state,” Carmichael said. “It’s needed done and accomplished for many years.
“We are the only state in the nation that has lost population over the last 50 years. We have one of the lowest per capita incomes in America. Our budget is in a tailspin. Why not change? We require a new direction and change in direction more than in other states.”
Last week, the Senate Committee on Tax Reform passed Senate Bill 335, which now heads to the Senate Committee on Finance.
Among some of the amendments to the bill are increasing the soft drink tax from 1 cent to 5 cents, with 1 cent still going to WVU School of Medicine, increasing wholesale markup prices for liquor to 36 percent and increasing the beer barrel tax from $5.50 to $11 per barrel. Amendments also would exempt Social Security and military retired pay from personal income tax.
“They (the House) have a more modest approach to tax reform,” Carmichael said. “We are doing bold, aggressive, and dynamic tax reform proposal where the House has a much more moderate approach.”
Also last week, legislative leadership announced its framework for the budget, saying the goal is for the state to “live within its means” by staying within its $4.055 billion revenue estimates, compared to the governor’s proposal of $4.5 billion. Some of the proposals include continuing the 2 percent midyear cuts, increasing the beer barrel tax and increasing the wholesale liquor tax.
“We felt the responsible approach to budgeting was to bring forth an expenditure document that uses no more than we have and as a result requires some difficult decisions,” Carmichael said, later adding, “This budget makes difficult decisions but it’s the responsible thing to do and what every family does.”
Carmichael and House Speaker Tim Armstead, R-Kanawha, also said the plan includes taking a hard look at things that have typically been “off the table” — the Department of Health and Human Resources and K-12 and higher education, in particular.
“I’m hesitant to call them cuts because what they really are is providing agencies with every penny the taxpayers are providing West Virginia to spend. We have a willingness to review areas to make sure reductions in expenditures are done in the most efficient manner possible.”
The budget framework requires $150 million across those three agencies or $50 million from each.
“What I want to emphasize is we are providing agencies with the flexibility to be more efficient, to be more effective, and there are bills that have gone through the process to give more flexibility to institutions of higher education, the Department of Education and the DHHR to be more efficient. We can cut $1 but we are able to use our resources better to make up for that dollar.”
Carmichael said during last week’s press conference on the budget that he is committed to having the budget passed before the end of session on April 8.
When asked if he thought getting the budget out before the end of session was feasible, Carmichael said leadership got through a big hurdle in developing the framework and the rest is filling in the details.
“We’re progressing well with that,” Carmichael said. “We are negotiating with the House and making sure there is a process going into place but we are so far ahead of the game that it really is lightning speed when you think about how it’s been done for years.”
Although leadership and the governor haven’t exactly seen eye-to-eye on the budget, Carmichael said he’s confident they can work together to figure something out.
“He has not agreed, but there is room for compromise,” Carmichael said. “I’m positive that we will find a way to bridge the gaps and move to get a budget out early and move the state in the right direction. And it’s important for people to speak out on this as well.”
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