CHARLESTON, W.Va. — Starting another morning of negotiations with state legislators, Gov. Jim Justice advocated for looking at the big picture of the latest budget framework, rather than getting hung up on too many details.
“We’ve tried to put together good ideas from different parts of the plan from different people. I think we’ve got a plan that could be so impactful for West Virginia, it’s unbelievable,” Justice said during a brief and spontaneous appearance on MetroNews’ “Talkline.”
“We’re really close if we just don’t start doing little things like nitpicking and majoring in minors. But nevertheless, I think we’re really close and I’m going to stay optimistic.”
— MetroNews (@WVMetroNews) June 1, 2017
Justice was resuming his negotiating technique today of walking room-to-room for meetings with different groups of legislators. Again, House Republicans and Senate Republicans were in separate rooms while Democrats from the House and Senate had gathered together in one room.
Today marks one month from the new fiscal year, when the administration would like to have a budget proposal of $4.35 billion in place.
After a hiatus intended to allow negotiations to take place, the broader Legislature is set to reconvene on Monday.
Perhaps considering the complexity of the negotiations still ahead, Justice commented to WCHS-TV this morning, “We’re not going to get a deal done until after Monday, that’s for sure.”
The budget package that Justice has been pitching offers a 6.35 percent sales tax and a slower rollout of the personal income tax reductions favored by Republicans in the Senate.
The personal income tax reductions would include an average 7 percent reduction the first year, and triggered reductions of a 7 percent average the second year and 6 percent the third year.
But the income tax reduction — and the details of the triggers — are already contentious among Democrats, House Minority Leader Tim Miley said this morning on “Talkline.”
After having discussed the latest budget proposal with his caucus on Wednesday evening, Miley said “There’s growing heartburn on reducing the income tax at this time.”
The triggers to reduce the personal income tax the second and third years are meant to assure those who are worried about the potential for blowing holes in coming budgets while also ensuring reductions for those who believe economic growth will result.
Miley said the details of how such triggers would work will be crucial, but that conversation hasn’t happened yet.
“We haven’t even talked about the triggers. We haven’t even gotten there, and we’re already having pushback.”
He later added, “Here we are, June 5 we reconvene and we still don’t have those details nailed down.”
Another contentious aspect of the latest proposal is the removal of sales tax exemptions for several sectors of the economy.
Those include telecommunications, digital goods, electronic data processing, health and fitness services, primary opinion research, all contracting services (this is a big one at $92 million) and direct use communications.
The removal of sales tax exemptions to all those areas, plus the general increase of the sales tax to 6.35 percent is estimated to bring in another $286 million the first year.
Lobbyists for all the industries that could be affected are already up in arms.
Senator Robert Karnes, who led his chamber’s Select Committee on Tax Reform during the regular session, posted a Facebook note lashing out over the proposed removal of those sales tax exemptions.
“So the latest plan the House leadership is jumping onto is a massive $320 Million dollar tax increase,” Karnes wrote. “It will add at least $5000 in sales tax to a typical new home. It will NOT include ANY net tax reductions in the out years. It has a CAT tax. It has a gas tax. It taxes direct use on communications. It DOES NOT include major income tax reductions.
“As has been noted by myself and many others, the speaker has surrounded himself with good old fashioned liberal tax and spend politicians.”
The full sales tax on contractors services is one big area of potential contention. An earlier revenue bill that passed out of the House of Delegates capped the tax to the first $40,000 spent.
“The contracting services part of it, that’s never going to fly,” state Senator Craig Blair, one of the Republican negotiators, said today on “Talkline.” “It’s a real concern. I just don’t see how that works.”
Because that tax amounts to $92 million, Justice today said it would be difficult to come up with a budget without its inclusion.
“It’s going to be really difficult not to stick with it because it’s a big number,” Justice said this morning on “Talkline.” “This thing can’t be perfect for everybody all across the board. It just can’t be that.
“But it is a blend of everything. And that’s why I’m trying to keep people in different rooms so they can’t contaminate one another. Everyone gets defensive and start throwing up their guard.”
Even outside the Capitol, groups are raising issues with the latest proposal. One target has been a commercial activities tax of .015 percent now aimed at supporting highways funding. To simplify, if a company’s gross income is $1 million, the tax would be $150.
The tax, which is on a business’s gross receipts, is anticipated to bring in about $12 million a year.
It would be a newly-established tax for West Virginia, so the national, pro-business Tax Foundation questioned whether it’s even worth the trouble.
“Even if the tax never grew, this would be a significant burden. All tax administration comes at a cost, but building out the infrastructure to collect and audit a tax that raises a mere $11 million or so is highly inefficient,” analyst Jared Walczak wrote.
Responding on Twitter, director Ted Boettner of the West Virginia Center on Budget and Policy tax think tank and advocacy group agreed.
I tend to agree. If you are going to enact a CAT, it should be much bigger. The admin costs are not worth the small revenue gain.
— Ted Boettner (@WVpolicywonk) May 31, 2017
Delegate Miley, speaking on “Talkline,” said all those concerns are examples of how it’s difficult to gather the votes to pass a budget plan with so many components.
He noted the budget plan that included no sales tax increase and no income tax reductions that passed the House of Delegates two weeks ago, saying significant numbers of his caucus view it as a good starting point.
“They view that as a simple way to resolve this matter instead of going down the more difficult path of all these moving parts,” Miley said.
Miley said the governor “is trying to address everyone’s concerns. The problem is, for every new proposal you put in the plan it has the tremendous risk of creating opposition to it for any number of reasons.
“When you try to please everyone, you wind up pleasing no one. Some may say that makes a good compromise, but I don’t know that it does when you’re trying to get the support of different parts of the state, different constituencies and different ideologies and mindsets.”