By JAKE ZUCKERMAN
CHARLESTON, W.Va. — The latest drafts of West Virginia’s FY 2018 budget would put the state on board with a national trend of reducing income taxes, while going against the grain by raising sales and use taxes, a new report shows.
The National Conference of State Legislatures published its report of state tax actions in 2016, reviewing revenue plans from all 50 states. It found the phasing-in of income tax reduction packages, coupled with increases in sales and use, health, tobacco, and motor-fuel taxes led to $2.3 billion in new revenue from all reporting states.
Though West Virginia’s revenue plan has been in a state of flux throughout the stop-and-go special session, recent versions have included some combination of income tax reduction, sales and use tax increases, and a broadening of the sales tax base.
The most recent plan from Gov. Jim Justice would increase the sales tax to 6.35 percent and eliminating sales tax exemptions on contracting services, while reducing income taxes by 7 percent in 2018, and continuing reductions in 2019 and 2020 if the tax reductions create more revenue in business growth.
Critics have said income tax reductions don’t necessarily lead to business growth, pointing to states like Kansas that slashed income taxes and have experienced massive revenue loss and gaping budget holes as a result.
In 2016, 17 states reduced their personal income taxes compared to the six that raised them; 15 states reduced sales and use taxes, while six states raised them; and 20 states reduced their corporate and business taxes in 2016, while five states raised them, according to the NCSL.
Looking at total revenue from all reporting states, net state revenues from personal income and corporate income taxes are down $884 million and $737 million respectively, while revenues from sales and use taxes are up by $789 million, health care by $1.35 billion, tobacco by $1 billion and motor vehicles by $922 million.
The same Tax Foundation list ranked West Virginia 35th in the nation for combined average sales and local tax rates at 6.29 percent, bringing in $14.9 million in added revenue over the prior year.
Indiana boasted the most significant net tax reduction at 2.3 percent, in part from the phasing in of personal and corporate tax policies enacted in 2013. This reduced its revenue by just over $400 million.
West Virginia is one of several states to be working out its budget woes in the statehouse this year. According to a list curated by CQ Roll Call, 24 states have been working on budget shortfalls.
When cross-referenced with NCSL’s latest states’ budget data from June 1, of the 24 states facing a deficit, only eight have passed budgets: Colorado, Maryland, New York, North Dakota, Mississippi, South Dakota, Montana and Virginia.
Of these states, only New York and Mississippi reduced income tax revenues by a significant amount in 2016 at $118 million and $84 million in cuts respectively.
The West Virginia legislature briefly convened Monday amid ongoing budget negotiations. The fiscal year ends June 30, which could lead to a state government shutdown if all parties do not come to a budget agreement by then.
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