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Current West Virginia tax structure holds middle ground


The Parkersburg News and Sentinel

Editor’s note: With days left in the 2017 legislative session, West Virginia’s budget situation remains murky, with competing proposals from Gov. Jim Justice, the Republican leadership in the House and Senate and the House Liberty Caucus under consideration. Today, we continue our three-day look at the budget proposals, West Virginia’s current tax structure as it compares to our border states and how trying something totally different such as eliminating the personal income tax could help — or hurt — the state’s budget picture and business climate.

PARKERSBURG, W.Va.  — The United States Tax Foundation ranks West Virginia 18th in its State Business Tax Climate Index.

Wyoming sits at No. 1.

But 18 is not so bad for a state a few years earlier wasn’t thought of as business friendly because of the tax system, and is a ranking groups like the Chamber of Commerce of West Virginia want to protect.

(The Parkersburg News and Sentinel graphic)

“We don’t want to kill the goose that lays the golden egg,” Steve Roberts, executive director of the state chamber, said.

The aim should be a balance between West Virginia’s competitiveness with other states and having enough revenue for schools and health care, he said. “Education and health care should not pay a heavy price for the economic downturn.”

Tax reform bills are pending in the Legislature, of which the regular session ends Saturday. Proposals have changed several times, but getting the most attention has been the elimination or reduction of the personal income tax, replacing it with a general consumption tax on more goods and services, including reinstating the tax on groceries.

“That’s essentially the argument,” Senate President Mitch Carmichael, R-Jackson, said.

A fear, among others, is a higher sales tax or consumption tax on a wider base of goods and services, including food, will drive shoppers in border counties to other states. However, Carmichael said the data doesn’t indicate that people drive across the line for a 1 or 2 percent difference.

In West Virginia, the sales tax is 6 percent, with groceries exempted. Some communities in the Home Rule program can charge a piggyback tax of 1 percent. Sales tax rates and exemptions vary in bordering states.

A tax on food of around 8 percent would be high enough to cause customers to go where there is no tax or a smaller tax, Ted Boettner, an assistant director of the West Virginia Center on Budget and Policy, said.

“At 3, 3.5 percent, not so much,” said Boettner, citing a study conducted by West Virginia University in counties where crossing the border can be easily accomplished.

“Still, it does hurt low-income people,” he said.

While being careful not to greatly impact the people who have the least, property taxes also need review, Boettner said.

“Property taxes are very, very low in West Virginia,” Boettner said — among the lowest in the nation.

That’s not a bad thing, said Bill Maloney, a businessman who ran for governor as a Republican. Maloney is on the board of the Cardinal Institute, a West Virginia think tank on economic issues, and the Center for a Brighter Future.

The goal should be to bring people and businesses back to West Virginia and encourage economic development, according to Maloney. Reducing and eliminating the personal income tax, corporate income taxes and the taxes on equipment and inventory also will encourage residency in West Virginia and encourage businesses to expand and locate in the state, Maloney said.

Making it cheaper to do business in West Virginia will give the state an edge over adjoining states, he said.

“But you got to change the whole tax code,” he said.

Changes are needed, Carmichael said. West Virginia is lowest in per capita income and is the only state losing population and to continue with the existing system would be to continue with a downward trend, according to Carmichael.

“The tax structure is not working,” Carmichael said. “It is not serving the people of West Virginia well.”

Lower wage earners as compared to higher wage earners typically spend a greater share of their income on goods and services that would be subject to the consumption taxes, said John Deskins, director of the West Virginia University Bureau of Business and Economic Research and an associate professor of economics.

“This policy has positives and negatives, as does every policy,” he said.

Garrett Ballengee, executive director of the Cardinal Institute, said he understands why businesses in the border counties would be concerned about customers crossing state lines to shop or obtain services. Perhaps the concern is overblown, but the development caused by the additional economic activity would offset any crossover, he said.

“People fear any type of change,” he said. “People prefer the devil they know than the one they don’t.”

The theory behind the consumption tax is it will encourage savings and that encourages economic development, Ballengee said. Banks will have the capital to lend, a factor in economic growth, because more money is being saved, he said.

“In general, revenue from a consumption tax is better than revenue generated from an income tax,” Ballengee said.

With a consumption tax, “you won’t be taxed unless you spend the money,” Ballengee said.

To offset the impact of a general consumption tax, lower wage earners can be offered tax credits or other exemptions based on income level, Ballengee said.

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