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New taxes could also be part of the budget fix

With a budget shortfall of as much as $500 million looming next fiscal year, much of the talk among state leaders has been where and how to cut between 10 to 15 percent of the General Revenue budget. However, there are also discussions about finding new revenue through tax increases.

Senate Minority Leader Roman Prezioso (D-Marion) is a former chair of the finance committee and he knows how difficult it will be to make cuts that deep. “I don’t think it’s realistic,” he told me on Talkline Thursday. “You’re going to have to get into situations you just don’t want to get into.”

And that leads Prezioso to believe new taxes have to be part of the solution. “I don’t think you have any other choices,” he said.

If there is a tax increase proposal, one of the likely targets is the six percent consumer sales tax. It’s a broad tax that brings in a lot of money — between $1.2 and $1.3 billion this year — and it’s easy to collect. Raising it to seven percent would bring another $180-$190 million annually.

However, the seven percent rate would be higher than any of the five surrounding states. Additionally, a number of municipalities have added their own sales tax, meaning their rate would be pushed even higher.

Another potential revenue target is the goods and services that are exempt from the state consumer sales tax, and there are dozens of them.  A few are so small — like the sales tax exemption for U.S. and West Virginia flags — that they are inconsequential, but others represent substantial amounts of money.

Food for home consumption is exempt. Reinstituting the six percent sales tax on groceries would generate about $170 million annually. Taxing lawyers, accountants and other professional services would bring in about $150 million. Removing the exemption on certain media advertising would raise an estimated $27 million. Taxing prescription drugs could, theoretically, raises tens of millions of dollars.

The list goes on and on, but you get the idea. Every exemption was added to the tax code because it had a constituency group that fought to get it there, so removing it would generate a political battle. And can you imagine the outcry if the state tried to tax grandma’s medicine?

There is another option that’s being talked about — removing most of the sales tax exemptions, but lowering the rate. Members of the state Senate are considering that idea, but that’s a heavy lift to try to accomplish in the upcoming session and it likely would not generate additional revenue in the short term to help plug the massive budget hole.

As we’ve said before, given the magnitude of the state’s budget shortfall, there are no good options.  Neither the new Governor nor most lawmakers want to raise taxes. However, as Prezioso said, “When legislators look at the magnitude of what needs to be cut and how it affects certain areas, they may change their mind.”

MORE: Big cuts and more necessary to balance W.Va. budget, House Speaker Armstead says

 





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