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Tax overhaul progresses, despite poor projections


Charleston Gazette-Mail

CHARLESTON, W.Va. — After several rounds of edits and ominous cost projections from state revenue representatives, the Senate Select Committee on Tax Reform voted Monday to send its overhaul bill up to the full senate and off to its finance committee.

Should it pass, the bill would repeal income and other taxes and replace them with an 8 percent consumption (sales) tax.

According to Deputy Revenue Secretary Mark Muchow, though the bill would balance the budget within a year, it would also cost the state nearly $2 billion by 2033.

However, committee chairman Sen. Robert Karnes, R-Upshur, disputed the findings in an interview Monday. He said Muchow’s analysis overestimated future income tax losses and underestimated revenues from the consumption tax.

He said with more disposable income, consumption would increase, bringing up the tax’s revenue along with it.

Karnes said he does not have a quantitative analysis to back up his idea, but said he based it on academic research supporting the idea. He added that academic researchers are currently working on projections to share with the finance committee.

Despite Karnes’ skepticism of the Department of Revenue’s report, the committee voted in several changes to the bill during the committee hearing.

For one, the committee reduced the new, interim tax rate from 2.65 to 2.5 percent.

However, the committee also changed the repeal rollout. Instead of automatically reducing the income tax rate by .27 percent per year starting in 2023 (the plan as of Saturday), the income tax rate will now decrease by 0.1 percent for every $50 million the state collects in the consumption tax beyond $2.5 billion, so long as the state maintains its general fund revenue at a ratio of at least 15 percent the size of its general fund.


Additionally, the committee passed amendments Monday that would exempt social security payments from taxes to give senior citizens on fixed incomes some breathing room.

To pay for it, the amended bill will levy additional taxes on soft drinks (from 1 cent to 5 cents), wholesale liquor (from 28 percent to 36 percent) and beer barrels (from $5.50 per barrel to $11).

According to estimates from the committee’s legal counsel, the social security tax exemption would cost the state $90 million annually in lost revenue, while the new soda tax would generate $60 million per year in revenue, and the combined alcohol taxes between $12 and $13 million.

The committee also added an earned income tax credit to the bill.

Muchow’s projections do not account for Monday’s changes to the amendment. The committee voted to amend the bill and pass it without a new fiscal note. The original fiscal note predicted an income tax repeal with the addition of a sales tax would blow a $610 million hole in the budget.

Most of the original provisions in the bill remain. Among them, the 8 percent sales tax will take effect Oct. 1, 2017. The reduced income tax rate kicks in Jan. 1, 2018.

The new consumption tax will include a broader base than the state’s current 6 percent sales tax rate, levying taxes on previously untaxed goods such as groceries, utilities and others.

Once the income tax rate whittles down to zero, the bill calls for the state to begin tapering away at the corporate income tax as well.

The bill will also reduce statewide and local coal severance taxes.

Along with passing the bill through the legislature, Karnes has said in the past he wants to codify the new tax structure into the West Virginia Constitution, embedding it into the state more permanently.

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