West Virginia’s House of Delegates passed a bill aiming to eliminate the state personal income tax over a little more than a decade, but immediate questions remain.
There’s no certainty the bill will be accepted by the state Senate or by the governor. And there are serious questions about whether it would maintain the financial viability of state government over the long haul.
House Speaker Roger Hanshaw, R-Clay, alluded to all that uncertainty today during an appearance on MetroNews’ “Talkline.” He alluded to the possibility of needing a special session to work out differences.
“At this point, the important thing is that we just keep bills alive to keep discussion going about where we head with the personal income tax,” Hanshaw said.
“I think there’s probably a lot more work to be done in terms of how we make this leap if we do make it, whether it gets done this regular session or if it gets done later in the year or somewhere down the road.”
.@SpeakerHanshaw talks with @HoppyKercheval about the Tax Bill, Intermediate Court, and Bills not out of committee. WATCH: https://t.co/wkudfIRZCB pic.twitter.com/j5H6VwYbqv
— MetroNews (@WVMetroNews) March 29, 2021
House Bill 3300 passed 77-23 today.
The bill would cut at least $150 million in income taxes a year until it’s eliminated. That proposal does not contemplate any other tax increases to make up for the cut and has already raised questions about how to sustain government services with compounding income tax cuts over the long haul.
In addition, the bill would set up a “personal income tax reduction fund” that would fill up with other sources, including Lottery proceeds. This is meant to accelerate the overall pace of income tax reduction.
When the fund hits $400 million, it would shift $100 million of that to the General Fund “to provide a cushion for an additional permanent $150 million in personal income tax reductions. So the income tax reductions could amount to as much as $300 million a year.
“This is a new green deal for West Virginia. Not the one you’re thinking of, but a true green deal that puts money in your pockets,” said House Finance Chairman Eric Householder, R-Berkeley.
A fiscal note released late last week by West Virginia Lottery anticipates effects to funds that now go to pay down bonds, Promise scholarships, education, tourism and senior citizens
No one expects that to be anywhere near the final legislative step. The Senate is likely to make changes. And Justice has made clear he prefers something closer to his own plan, which takes a 60 percent cut of the personal income tax right away, making up much of the money through sales tax increases and expansion.
That continued discussion may be for the best, said Jared Walczak, vice president of state projects at the national Tax Foundation.
“The House plan is arguably at least partly a placeholder to keep a bill alive through crossover, but as a plan for income tax rate reductions, it lacks any revenue offsets and thus would be very difficult for the state to afford,” Walczak said today.
“Phased rate reductions can make good sense, but the House plan fails to adopt any broader reforms — it doesn’t do anything beyond reducing rates — and it would substantially reduce state revenues over time.”
He concluded, “Policymakers are right to focus on the importance of tax competitiveness, especially in a more remote-work friendly environment, but these plans will have to continue to evolve if they are to meet policymakers’ goals of stability and growth.”
Governor Justice’s proposal would cut West Virginia’s personal income tax by 60 percent right away, while making up most of tax base with a variety of increases.
An outline of the governor’s plan estimates initial personal income tax reductions totaling $1,035,650,000 and rebates totaling $52 million for lower-income residents — but also tax increases of $902,600,000 to make up for most of those breaks.
“I’d say to every West Virginian out there, this is so important it’s off the charts. Take the time to understand the facts,” Justice said during a briefing today.
“If I’m wrong, tell me. If I’m wrong, challenge me. Take the time to understand the facts because you’re going to absolutely leave so much money on the table, and it’s going to hurt you. You’ve got lawmakers who don’t understand. You’re got people who don’t understand, businesses that don’t understand. They just don’t understand.”
The West Virginia Council of Churches added its voice to the groups raising concerns to the governor’s plan. In an op-ed in The Charleston Gazette-Mail, Bishop Mark Brennan said the sales tax increases would weigh too heavily on the state’s most vulnerable citizens.
“If our state government truly wanted to do good to its citizens with limited income, it would lower the sales tax rate, not raise it. Raising it will hurt them,” wrote Brennan, archbishop of the Wheeling-Charleston Diocese.
Delegate Mick Bates, D-Raleigh, said today on the House floor that this is a debate no one really asked for. He said the governor, some senators and a few more supporters have instigated it.
Bates pulled out a small metal container marked with “P.I.T.” to signify a personal income tax bucket. He wound up voting for the bill, but offered two amendments that were rejected.
“This is just another thing that people don’t fully understand that messes with their lives and their livelihood,” he said.
His colleague, House Minority Leader Doug Skaff, agreed that the time is not right to decide the income tax issue now.
“Why do we have to do it today? On Day 48. Let’s kick this thing into summer,” said Skaff, D-Kanawha. “Let’s do it right. Let’s do it responsibly.”