CHARLESTON, W.Va. — Senate Finance Chairman Mike Hall says the simplest path to a state budget agreement might be the best path.
That doesn’t necessarily mean enough lawmakers agree with Hall to make it happen.
“I think I’m in the significant minority in terms of what I think ought to be done,” Hall, R-Putnam, said in a telephone interview today.
Hall is advocating for a budget package that strips away areas of disagreement — the corporate activities tax backed by Gov. Jim Justice and the income tax reform backed by the rest of Senate leadership — and just focuses on resolving the budget gap for the coming fiscal year.
What would remain, in Hall’s calculation, would be a slightly increased state sales tax along with a tax on telecommunications services.
“The immediate problem in front of us is about a $200 million – you just need a revenue measure for a couple of years,” Hall said. “My simple solution is, why don’t we look at the sales tax – a slight increase — and tax telecommunications.
“That’ll raise you around $200 million. It accomplishes the same thing as the governor’s plan, but it takes all the complication out of having to gear up for a new tax like the CAT tax.”
Governor Justice last week announced a veto of a legislative budget that would have closed the fiscal gap by using about $90 million from the Rainy Day fund along with about a $140 million reduction to the medical services line for the Department of Health and Human Resources and a higher education cut of about $30 million.
Since the final day of the legislative session, Justice and Senate leadership have been talking about a compromise budget that would include the desires of both parties.
That includes a 1-percent increase in the consumer sales tax, a triggered phase-out of the income tax backed by Senate leaders, plus a .045 percent tax on gross business receipts and lump sum taxes on higher wage earners, both backed by Justice.
The possible compromise also includes Justice’s highways funding package, including increased gas tax and increased DMV fees.
One big trouble is, House leaders have said they don’t support increasing the sales tax or establishing the corporate activities tax. House Speaker Tim Armstead has described those moves as non-starters for his caucus.
“When we left town, it was evident to me the attitudes to tax reform in House and Senate were the exact opposite,” Hall said today. “One (the House) wanted to focus on sales tax relief at least to current taxable events but broaden the taxable events, which I’m not a big fan of. You may be doing things in haste you haven’t totally vetted.
“The Senate version was more in line with the governor, who wanted to raise the sales tax rate and offer a modest relief on the income tax.”
Until the Senate and the House can agree on a path forward, that makes it challenging to come up with a compromise that also includes the governor’s desires, Hall said.
“So the simplest solution is the best one – just raise an existing tax a little bit for a short time until you get rid of the problem and if our economy comes rolling back. I’m going to suggest it as a compromise for a couple of years,” Hall said.
“Then you could pile tax reform on the back end of things or you could build it in.”
Hall says there’s not yet a groundswell of support for his idea.
“I’m told that my opinion is not widely held by many in the Senate or in the House. They view that as a tax increase,” Hall said. “I’ve got a few people with me. Even the governor doesn’t agree with me.”
Today on MetroNews “Talkline,” Senator Robert Karnes said he thinks there is enough support for the existing compromise to pass the Senate and gather momentum going into the House.
Karnes, R-Upshur, led the Select Committee on Tax Reform that worked throughout the regular session on proposals to reduce and eventually eliminate the state income tax. He said existing support for that plan plus support from the governor would be the necessary elements for passage.
“I don’t think there’s a question of having the votes to get it out of the Senate,” Karnes said. “With his support behind compromise plan I believe we would have picked up at least half of the Democratic caucus as well.”
Karnes said some changes would have to be made to accommodate the House’s concerns.
“I don’t believe it’s a nonstarter in the House,” Karnes told “Talkline” host Hoppy Kercheval. “These are things I think the governor is going to have to recognize to get both chambers on board may need adjustments around the edges.”
Karnes said there are aspects of the bill that he doesn’t particularly like — such as the commercial activities tax. But he believes the income tax reduction would provide enough economic boost to the state to make the tradeoff worthwhile.
“On the CAT tax — I don’t like the CAT tax, I wouldn’t have come up with the CAT tax — but you’re in this kind of process where the governor is an ardent supporter,” Karnes said.
“But because it is such a small tax and because it’s sunsetted within the bill, to get what I think is a great benefit sometimes you have to swallow a bitter pill.”
Even though Karnes expressed optimism, he said he wouldn’t be surprised to be working on the budget right up against the coming fiscal year, which begins July 1.
“Timing is always the question. I wouldn’t be a bit surprised to find that we’re right up to the drop dead date. We did that last year. It becomes that moment of truth. It may be that we have to get right up to that line,” Karnes said.
House Minority Leader Tim Miley and some of his fellow Democrats were to meet this afternoon with the governor. Miley, speaking on “Talkline,” noted that the 36-member Democratic caucus is largely subject to what the 63 Republicans in the House want to do.
“There didn’t seem to be much if any interest in the governor’s plan from Speaker Armstead’s perspective,” said Miley, D-Harrison.
He later added, “If the Republican caucus isn’t on board, it doesn’t really matter what the Democrats think of the governor’s plan.”
Miley said he is concerned about the effects of the income tax changes, both on lower wage earners and on the state budget in the coming years.
“I’m concerned there will still be a shortfall in the out years and if there’s shortfall after raising taxes now how will we address future shortfalls?” Miley asked.
The West Virginia Center on Budget and Policy, a nonprofit think tank based in Charleston, contends the Senate/Justice compromise budget is regressive, affecting lower wage workers while producing breaks for higher earners.
The center also calculates that the plan might patch the coming fiscal gap but it would knock a hole in the budget for the following fiscal year.
“Cutting income and severance taxes – while phasing out the income tax – is not going to pave a strong future for the state,” executive director Ted Boettner wrote.
“Instead of moving in this direction, lawmakers need to work together to ensure tax reform is addressing the state’s looming budget crisis, not making it worse.”