Scaling back income tax cut for budget deal has to happen, senator says

CHARLESTON, W.Va. — A personal income tax reduction discussed as part of a state budget package is likely to be scaled back to about a 20 percent reduction over a three-year period, a senator said today.

“I would rather go for more, I’d rather go for a bigger bang,” said Senator Robert Karnes, R-Upshur, who led the state Senate’s Select Committee on Tax Reform this year. “We’ve scaled back because we’ve had to. Not everybody necessarily agrees.”

A bill considered last week during a Special Session of the state Legislature would have resulted in an average 20 percent reduction in the personal income tax starting this coming January 1.

The new version being discussed slows that down, including economic triggers to bring the tax down even more in coming years.

“I believe every little bit helps,” Karnes said this morning on MetroNews’ “Talkline.” “Some of it has to do with competition. We want to make sure as rapidly as possible we hit the point where we’re competitive in this tax arena.

“The economic research out there indicates it’s great if you can get to zero income tax, but every little bit makes a difference.”

Speaking Tuesday afternoon from the state Capitol, Senate President Mitch Carmichael agreed that lawmakers negotiating state budget deal will slow down the personal income tax reduction.

“The governor is still, and I believe rightly so, committed to fundamental tax reform in which we cut taxes for working West Virginians. He still very much wants to do that, and I one hundred percent agree with him,” said Carmichael, R-Jackson.

“What I’ll say is there are other viewpoints in the House that we need to accommodate that take a much slower approach, and we’re working through those issues with them. I feel confident we’ll have an agreement.”

The Republican majority in the Senate, along with Governor Justice, have expressed enthusiasm for lowering the personal income tax with a goal of eliminating it over time.

A budget package they negotiated would have raised the consumer sales tax by a penny six months prior to lowering the personal income tax by an average of 20 percent. The resulting revenue cushion would be a key component of balancing the state budget.

Republicans in the House of Delegates have objected to the increase in the state sales tax, as well as other proposed tax increases that have been considered as part of a budget deal.

The West Virginia Center on Budget and Policy, a tax think tank and advocacy organization based in Charleston, has spotlighted how the tax mix that was under consideration last week could affect different categories of wage earners.

The center’s latest calculation takes into account proposed increases in the corporate net income tax, a 1-percent increase to the sales tax, the removal of some sales tax exemptions and an increase in fuel taxes and DMV fees versus the lowering of the personal income tax.

Under the center’s calculations, the lowest 20 percent of wage earners would pay $123 more a year overall, the middle earners would pay $128 more a year, and the top 1 percent would get a $2,626 break.

Democrats in the Senate also have questioned the mix of tax changes, raising objections to increases to sales taxes on lower-income earners who would be saving fewer dollars overall on an income tax break.

Speaking Tuesday on “Talkline,” Senate Minority Leader Roman Prezioso said his caucus has been willing to consider the income tax changes as part of the overall goals of the budget package.

But Prezioso, D-Marion, urged caution.

“If we’re gonna do the income tax, that’s tax reform,” Prezioso said. “Let’s get it out of the equation right now or delay it for a year or have the governor have us come back in on a special session on tax reform. Let’s take care of this budget, address the needs of our citizens and don’t worry about shifting that tax burden right now.”

Karnes, though, said the moment is now to do something.

“It’s the grand bargain aspect of this,” Karnes said on “Talkline.”

As evidence, he cited the 32-1 state Senate approval of the budget plan that included the income tax reduction last week.

“Near unanimous vote, only one no vote. It’s hard to see how you could get that kind of rallying around such a plan when there isn’t the impetus of trying to resolve the budget issue,” Karnes said today.

He referenced taking part in studies of the state’s tax system during the past couple of years.

“A lot of the people who have a real interest in tax reform have a lot less reason to be supportive, a lot more reason to say let’s study it for another year, another two years. We already studied it for two years. Sometimes this moment of crisis that we seem to be in with the budget drives us forward. I don’t think it would happen if we had a budget.”

Karnes noted that the income tax reductions could be rolled back by future Legislatures, but he hopes that by then the benefit is evident.

“Once we start to see some benefit from it, we can point to it and say our population is growing again, it will be easier to defend the plan and stay on the plan,” Karnes said.

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