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Tax reforms on the brink in both houses on crossover day

CHARLESTON, W.Va. — On “crossover day” at the state Legislature, tax reform bills in both houses await approval or rejection.

Crossover day — which is today — is the deadline for bills to pass their house of origin. After that, the House can consider the Senate’s bills or the Senate can consider the House’s bills.

But if neither house has passed a tax reform bill, well that would make tax reform a real challenge.

The Senate’s bill, which has undergone three makeovers during its journey from the Select Committee on Tax Reform, is on third reading today.

The House’s, which narrowly survived a first-reading challenge back on Saturday, is also on third reading today, with several amendments up for consideration.

In fact, there are so many amendments being considered for the House tax bill, they were attached to a yardstick.

The Senate’s version broadens the consumer sales tax and raises it from the current 6 percent up to 7 percent. Starting Oct. 1, it taxes food at 3.5 percent.

It also reduces the state income tax from five brackets to three. The income tax steps down to zero over time.

In the House, the tax reform bill that has been under consideration since Saturday is also a key part of a possible budget plan. The proposal would provide an estimated $158.5 million in new revenue for the coming fiscal year.

It brings back the state food tax at a 3 percent rate. It also taxes a broadened array of personal and professional services.

Both of those measures are likely to receive pushback from legislators.

The House’s tax bill also establishes a 5.1 percent flat tax on income.

The Republican majority says lowering the overall sales tax to 5 percent and establishing the 5.1 percent flat tax will make West Virginia more competitive and attractive to businesses.

Democrats say the poor and middle class will be nailed with a tax increase and the rich will get a break. The bill adds a $10,000 exemption for those below $50,000.

A fiscal note on the House tax reform bill takes note of that dynamic:

“We note that the proposed Personal Income Tax changes reduce the burden of liability on some but not all individuals with taxable incomes below $25,000 and above $100,000. Those with taxable incomes between these levels will largely experience increased liabilities relative to the current structure.”

The House’s tax bill received praise Tuesday from The Tax Foundation, a Washington, D.C.-based think tank. The Tax Foundation generally favors tax plans it considers pro-growth, simple and transparent.

The Tax Foundation says that if the House’s plan were to pass, West Virginia would move from 18th to 10th in its State Business Tax Climate Index, which it describes as a measure of how well a state raises revenue.

“West Virginia has long struggled economically, and a better tax code should not be mistaken for a silver bullet,” according to the Tax Foundation’s conclusion published Tuesday. “But at the same time, reforming the tax code is something fully within the power of the state legislature which can play an important role in making the state more competitive.”

On Tuesday evening, The Tax Foundation took note of the impending crossover day deadline.

“Should the House pass the bill tomorrow, some of the provisions are still likely to change once the legislation arrives in the Senate, which is advancing a competing set of tax reform proposals, but if tax reform is to happen in West Virginia in 2017, it will require a vehicle.

“Two Senate bills—SB 335 and SB 409—might fill that role, as could HB 2933, but should none of these bills pass their chamber of origin tomorrow, then it’s likely that tax reform will have to wait another year.”

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