By PHIL KABLER
CHARLESTON, W.Va. — Proposals to lower state income taxes, making up some of the lost revenue with broader — and in one case, higher — sales taxes remain alive for the final 10 days of the regular session after the West Virginia Senate passed its version of the plan Wednesday on a 24-12 vote.
The House of Delegates’ proposal, which would replace the existing four-tier income tax rates with a 5.1 percent flat tax, is part of ongoing negotiations between House leadership and the Justice administration to come up with a 2017-18 budget bill compromise, sources said.
“There are a lot of moving parts,” he said of working out a budget compromise.
On Monday, Justice said he was encouraged by the House Finance budget proposal unveiled Saturday, which, while $180 million less than his budget plan, includes tax increases of $215 million, a concession that new revenue will be needed to help close a $500 million hole in the 2017-18 state budget.
“I’m optimistic we’re going to get a deal done,” he said Monday.
Besides imposing a flat tax, which would lower income taxes for higher-income residents, the House plan eventually lowers the sales tax from 6 percent to 5 percent, but expands it to include several personal and professional services and telecommunications services that are currently exempt from taxes. It also imposes a 3 percent tax on groceries, which have been tax exempt since 2013 (HB 2933).
Those changes would raise about $158 million of the $215 million revenue increase proposed in the House Finance budget.
Proponents of the House and Senate tax law changes contend that income taxes stifle economic development in the state — echoing arguments made roughly a decade ago when the Legislature voted to lower corporate net taxes and eliminate the business franchise tax.
Earlier Wednesday, the Senate passed and sent to the House its version of the legislation, which would drastically cut, and eventually eliminate, income taxes and would cut severance taxes on coal and natural gas in half, while raising nearly $450 million a year in new taxes with a broad-based 7 percent sales tax and a 3.5 percent tax on food (SB 409).
The bill passed on a largely partisan 22-12 vote, with Senate Democrats contending that the plan is regressive, shifting tax burdens from the state’s wealthiest residents to low- and middle-class families.
Sen. Patricia Rucker, R-Jefferson, who had raised concerns about increasing sales taxes in border counties, was the lone Republican to oppose the bill, while Sen. Richard Ojeda, D-Logan, was the lone Democrat to support it.
“This is a regressive tax structure. It’s the old trickle-down economic theory that’s been rejected wholly around the country,” said Sen. Mike Woelfel, D-Cabell. “A shift to a consumption tax is regressive. You don’t have to graduate from the London School of Economics to know that.”
Sen. Robert Karnes, R-Upshur, lead sponsor of the bill, argued that the tax shift won’t be regressive if it results in businesses creating lots of good-paying jobs.
“If you’re a poor person without a job, everything is regressive,” he said. “I think everyone is better off if you have a job.”
He added, “The reason why our population is shrinking is because our kids are leaving to go to the states that you say are regressive.”
Senate Finance Chairman Mike Hall, R-Putnam, said he has serious concerns with the bill but voted for it Wednesday, to keep a bill alive in the final 10 days of the regular session that can be amended if there is a compromise on tax issues — referred to in legislative lingo as a “vehicle.”
“I would say it’s a broken-down, junked vehicle,” Sen. Corey Palumbo, D-Kanawha, said of the bill. “My concern with this bill, every step of the way, is we are shifting tax burden from the upper-income wealthy to lower- and middle-class people.”
“Taking bold steps is never easy,” Senate Majority Leader Ryan Ferns, R-Ohio, said in support of the bill. “I think this is going to be one of the most significant impacts we could make for the state of West Virginia.”
A day earlier, Ferns staged a Senate floor vote on some of Justice’s initial tax increase proposals, totaling nearly $400 million, a vote which Senate President Mitch Carmichael, R-Jackson, later said in a news release showed the Senate’s universal distaste for tax increases.
Senate Democrats, however, called that proposed amendment to a minor budget bill a political stunt, and said the tax proposals it cited are outdated, in light of the ongoing budget negotiations — negotiations that Senate leadership has largely avoided.
The Senate passed its tax revision bill despite having no Fiscal Note prepared by the Department of Revenue outlining potential gains and losses in revenue if it becomes law.
An earlier version of the proposal, which included an 8 percent consumption tax and elimination of income taxes on Jan. 1, 2018, would have increased tax collection by $510 million in the upcoming budget year but, ultimately, would have blown a $610 million a year hole in future budgets, according to the Fiscal Note.
Passage of the Senate plan also keeps the House proposal alive, since it can be amended into the Senate bill.
The House, Wednesday evening, postponed consideration of its bill. However, there is significant opposition among delegates to the House bill, which was nearly rejected on first reading Saturday, surviving the rare procedural move by just a four-vote margin. Also, as of Wednesday, there were 18 proposed amendments to the bill pending.
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