House revenue bill signals budget progress

The state Senate returns to Charleston today to consider the critical revenue bill passed by the House Friday afternoon.  The Senate will likely replace the House version with their own bill, but that does not mean the two chambers will just ping-pong the legislation back-and-forth endlessly.

The procedural dance will lead to a House-Senate conference committee where key members of each chamber will sit down to try to work out a compromise.

The House passage Friday of HB 107 felt like progress.  “It’s a way to break the logjam and get things moving,” said Delegate Brent Boggs, the number two Democrat in the House.  The bill passed with bi-partisan support, 74-17 with nine absent.

The bill strips out the personal income tax rate reductions favored by the Senate and the Governor, but it replaces them with a three-year phase out of the income tax on Social Security income for individuals making less than $100,000 a year, an elimination of the income tax on military retirement checks and an increase in the personal exemption from $2,000 to $2,500 for individuals with annual income of less than $100,000.

Politically, the House tax plan is a smart move.  It appeals to large swaths of people—lower and middle income West Virginians, seniors and veterans.  Those three categories cover just about everyone in the state, making it difficult to oppose.

The House bill also increases taxes, but in a way that is more easily defended than the Senate version.  The plan supported by the Senate Republicans and the Governor raised the consumer sales tax from six percent to 6.95 percent. That tax increase would hit everyone.

The House version relies more on broadening the base of the sales tax by eliminating exemptions on certain consumer and business activities, the biggest being telecommunications services.

The House-passed revenue bill means the House anticipates a budget for next year that will spend about $4.25 billion, or about $100 million less than Governor Justice anticipates spending.  However, budget numbers remain vague because the Governor has not yet submitted his proposed budget or updated revenue figures.

But let’s get back to the optics. The House has finally found a revenue sweet spot that a majority of Republicans and almost all the Democrats can agree to. As one Capitol source told me, the House has now gained the upper hand in the messaging.

The next big question is whether Senate Republicans and the Governor, who have been aligned in recent weeks, are willing to give up on their insistence upon personal income tax rate reductions and accept in its place the tax cuts for seniors and veterans and an increase in the income tax personal exemption.  Maybe they could be assuaged with the pledge of a special session later in the year to work exclusively on tax reform.

We know this about these difficult revenue, tax and budget discussions; proposals can rise and fall quickly and strained personal relationships throughout this ordeal make it even harder to reach consensus.  But the House approval last week of a bill clarifying how state workers would be furloughed in the event of a shutdown has helped bring some clarity to the negotiations.

The possibility of closing government is real, and if it happened lawmakers and the Governor would still have to agree on a budget at some point.  It’s far better to make those difficult and potentially unpopular decisions now than later.

 

 





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