Session is halfway there; tax cut is living on a prayer

As West Virginia’s regular legislative session reaches its halfway point this coming week, it’s clear there’s still a big gap on Gov. Jim Justice’s top priority, a 50 percent personal income tax reduction over three years.

The governor has continued to barnstorm the state to promote the tax cut. But more and more, the governor has expressed frustration with the Senate’s Republican majority, saying they’re taking too long to settle on a tax cut.

Jim Justice

Asked about the possibility of the legislative session ending without an agreement, Justice said last week that’s a real possibility. Thursday is day 30 of the 60-day regular session.

“That not only is the risk, that may be the strategy,” said Justice, a Republican. “From the standpoint of what’s going on on the Senate side, it may actually be the strategy — which would be catastrophic to our people. But at the end of the day, we don’t have anything back from the Senate. The Senate says they’ve got a plan. Well, where’s the plan? Where’s the beef?”

The view from the Senate is different. Senate leaders have described a deliberate approach to the tax cut, saying they have to get it right to avoid future fiscal disaster.

Eric Tarr

Senate Finance Chairman Eric Tarr, R-Putnam, said it’s important to carefully assess the effects of the tax proposal in years to come. The Senate Finance Committee on Friday had a special hearing to scrutinize each of the many supplemental and surplus appropriations proposed for this year’s state budget.

Tarr contends the governor’s activities aren’t helping.

“The governor needs to be removed from the process. I’ve said this before. I think he’s an impediment to getting what’s best done for the state of West Virginia,” Tarr said last week on MetroNews’ “Talkline.”

“I think this governor is taking some of the Roman emperor’s view that you give them bread and circus and you rule them forever. I think that’s what he’s been doing is going around the state and doing the bread and circus part of it by passing out things and letting other things that are critical to our state’s needs really fall apart.”

Tarr says the House and Senate could work out the state’s financial priorities on their own.

“He’s not needed in this process. We have mega-majorities in the House and Senate. The only reason he needs to be in the process is for his own ego, period. If he would step out of the way, I believe the House and Senate gets a lot more production out of this Legislature,” he said.

The Senate Finance chairman has been concerned about coming expenses such as a declining federal Medicaid match, a financial time bomb at the Public Employees Insurance Agency, pay raises for state employees including teachers and corrections officers, expansion of the Hope Scholarship for students opting out of public schools and a priority for more classroom support at early grade levels.

Hoppy Kercheval: How Justice and Senate Republicans get to yes

A fiscal note  assessing the governor’s tax proposal concludes it would decrease General Revenue Fund collections by about $161.8 million in fiscal 2023, a little more than $1 billion million in fiscal 2024, $1.2 billion in fiscal 2025, and almost $1.5 billion in fiscal 2026.

Right now, West Virginia is running a budget surplus just shy of a billion dollars. But that’s based on several factors, including high energy prices that have produced high-performing severance tax returns and artificially-low state revenue projections that have enforced relatively “flat” budgets for several years in a row.

Tarr says the spending increases and tax cut just don’t balance.

“The numbers are damning,” Tarr said. “It’s as risky a thing and reckless as I’ve ever seen, and he doesn’t care because it’s the next governor’s problem.”

The finance chairman is correct to be cautious, said Kelly Allen, executive director of the West Virginia Center for Budget and Policy. The think tank concludes the governor’s tax proposal would knock holes in the state budget.

Kelly Allen

“I think the Senate’s process of being much more deliberate is a good one,” Allen said.

“This is really major tax reform we’re talking about, really major hits to the state budget and without getting our budget house in order, understanding what expenditures we need to prioritize, understanding things that are looming like PEIA, the need to make pay more competitive for public employees and a lot of other priorities, we can’t really assess what impact a big tax cut is going to have on our ability to provide basic services.”

She said there’s no need to rush toward those major financial decisions.

“I think the idea that we’re under some sort of time pressure is a bad one. It does not treat it with the seriousness and fiscal responsibility that it needs,” she said.

Americans for Prosperity West Virginia, a libertarian-leaning organization, has been distributing flyers to support the tax cut and hold senators’ feet to the fire. The flyer urges state residents to contact their senators and “ask them to keep their promise to enact bold, transformational tax cuts.”

Jason Huffman

Jason Huffman, state director for the organization, says people are responding. “The people are aware, and I think when there’s that much grassroots pressure, something’s got to break somewhere,” Huffman said. “So I think eventually cooler heads will prevail and folks will find a pathway forward on this.”

Huffman contends the state’s finances are on solid footing. He also suggests the big income tax cut would be a major economic stimulus. “When you dump a billion dollars back into the hands of taxpayers, you’re going to see growth,” he said.

He said there’s still plenty of time to strike a deal — even if that means going into overtime.

“The fiscal year doesn’t end until July 1,” he said with both dark humor and realism. “For the folks paying attention at home, we’ve had special sessions in the summertime before. That is a real possibility, I think.”

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