10:06am: Talkline with Hoppy Kercheval

Senate tax plan hits fiscal wall

Senate Republicans have pushed hard this session for comprehensive tax reform.  Throwing out the current method of collecting revenue and replacing it with a broad based consumption tax has been linked to GOP efforts to cut spending and revitalize the state’s economy.

The bold initiative phases out the state’s personal income tax over the next four years and replaces the six percent consumer sales tax with an eight percent consumption tax, while eliminating most of the sales tax exemptions. That would bring back the tax on groceries, tax professional services, utility bills and many other purchases that are currently exempt.

Supporters of the tax reform measure stressed they wanted to “run the numbers” to get an idea how the rewrite would affect state revenue collections.  Well, now the fiscal scoring is out and the numbers have seriously diminished the chances of passage this session.

The “fiscal note” prepared by Mark Muchow, deputy secretary of the state Department of Revenue, found that under the proposed plan, tax collections would drop by $870 million over the four-year period. That’s a deal killer, especially in a year when lawmakers are grappling with one of the tightest budgets in years.

House Republican leaders have been wary all along about the tax overhaul, and these findings give them even more reason to put off any serious consideration of tax reform. They are concentrating more on finding ways to cut spending.

Republican members of the Senate’s Select Committee on Tax Reform tried to put the best face on the findings during a meeting Monday.  “This is not entirely unanticipated,” said chairman Senator Robert Karnes (R-Upshur).  “I suspect you’ll probably see a revised committee substitute maybe as soon as this week.”

Muchow did not have the time or resources for a comprehensive study, which leaves many questions unanswered. For example, how much business would West Virginia lose to neighboring states with lower sales tax rates?  On the other hand, how much economic growth can be anticipated when switching to a consumption tax.

Former state Tax Commissioner Mike Caryl has published a report for the Public Policy Foundation of West Virginia in support of a consumption tax, arguing that it has many of the elements of an ideal tax structure; it’s broad-based, free of many exemptions, simple to administer and produces consistent revenue from year to year.

“Only when we adopt a simple, transparent system, which effectively fosters private investment, economic growth and expanding opportunities for citizens’ self-reliance should we seek the consent of the governed to collect and expend public revenues in their name for their benefit,” Caryl wrote.

That’s a powerful message that can serve as a guiding philosophy for tax reform in West Virginia.

Credit Senate Republicans for starting a serious conversation and crafting a legitimate proposal on tax reform rooted in the concept of letting people keep more of their own money and empowering them to have more control over their tax burden based on their spending decisions.

 

 





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