State Senate narrowly passes personal income tax phase-out
CHARLESTON — The leader of the West Virginia Senate Finance Committee tried one last time Wednesday to craft a plan for an income tax elimination Gov. Jim Justice and the House of Delegates could accept.
The Senate voted 18-16 in favor of House Bill 3300, the bill being used to phase-out the personal income tax in West Virginia, losing five Republican state senators.
Senate Finance Committee Chairman Eric Tarr, R-Putnam, presented a strike-and-insert amendment to HB 3300 that wiped out the original committee proposal in favor of a plan that tried to get closer to a new proposal presented Monday night by Justice at a summit between House and Senate majority and minority leadership.
Tarr, Justice and other supporters of phasing out the personal income tax believe that now is the right time to start phasing it out in order to bring in new residents.
“The reason this path was chosen was because the number one problem that affects this state is loss of population,” Tarr said. “This is our time to shine…this is the time where we can actually do something that moves the needle on population growth. And it’s not a guess.”
The Tarr amendment, based on the governor’s Justice 4 All plan, would phase out the personal income tax over a period of years, starting at 50 percent for the five personal income tax rates. Reductions going forward would be based on the amount of unappropriated revenue in the enacted general revenue budget every year starting Jan. 1, 2022. In years when there is no unappropriated revenue, there would be no reduction of taxes.
The personal income tax makes up about 43 percent, more than $2 billion of the state’s $4.5 billion general revenue budget. Tarr said his amendment would reduce personal income tax revenue by $818 million in its first full year.
Both the Senate Finance Committee amendment and the Tarr amendment create a Stabilization and Future Economic Reform Fund.
When the balance of the S.A.F.E.R. Fund reaches $100 million, $50 million is deposited into the general revenue fund, keeping the fund between $50 million and $100 million. The transfer would reduce personal income tax rates by 12.5 percent in the following fiscal year.
The revenues to the S.A.F.E.R. Fund would come from capping the state’s rainy day funds, with any revenue above those caps going into the new fund. It would also include increases in tobacco taxes, vapor and e-cigarette taxes and other tobacco products. A new Lottery scratch-off ticket would be created, with revenue going to the S.A.F.E.R. Fund.
The amendment puts back in place a tax rebate program for individuals and families earning less than $35,000 per year. Justice proposed the rebate program in House Bill 2027 and Senate Bill 600, the governor’s personal income tax plan that never made it out of either chamber.
“There’s about $40 million in rebates in here,” Tarr said. “Those rebates are put in there to make sure that every single West Virginian is cash-positive from this plan, and it does that.”
State Sen. Mike Caputo, D-Marion, questioned how effective the rebates would be considering the number of other tax increases in the Tarr amendment.
“No one can candy-coat or sugar-coat or flim-flam these numbers, because it’s just not going to work with me,” Caputo said. “To try to sell a bill of goods to think that $50 in the pocket per year is going to make them better off today than they were yesterday? I’m sorry, but I can’t buy that.”
Tarr’s plan also incorporates the governor’s retooled tiered severance tax rates on coal and natural gas. The tiered severance tax plan was part of Justice’s original proposal, but it ran into opposition from the coal and natural gas industry. Justice proposed a new tiered plan that was more acceptable to the industries during the Monday summit. Those funds would go to the S.A.F.E.R. Fund.
The plan passed by the Senate Finance Committee would have raised the consumer sales and use tax from 6 percent to 8.5 percent, while the governor’s plan increased it to 7.9 percent. The Tarr amendment raises the sales tax to 8 percent.
The Tarr plan would also tax prepared foods, food sold through vending machines, and soft drinks at 8 percent, though the return of the food tax on groceries at 2.5 percent as included in the Senate Finance Committee version was removed, which was a sticking point for Justice.
The Tarr plan still removes sales tax exemptions from various professional services, such as accounting, legal services, engineering and architectural services. It still taxes legal services resulting in contingency fees from settlements. It removes tax exemptions from the sales of electronic data processing, computer hardware and software, health and gym memberships, and broadcast and print advertising.
The Senate Democratic Caucus objected to the bill, having only seen the Tarr amendment Wednesday evening just prior to the floor session.
Democratic lawmakers offered motions to table the bill and recommit it to the Senate Finance Committee. Members demanded a fiscal note for the bill as required by the rules of the Senate. State Sen. John Unger, D-Berkeley, challenged a ruling of the chair that determined that the bill had a fiscal note.
“You’re not going to hide from the people of West Virginia the information about the fiscal impact,” Unger said.
“I think this hurts the state,” said state Sen. Mike Romano, D-Harrison. “It sounds great and sounds good, but everyone is guessing how this is going to turn out. We shouldn’t have to guess, because this Republican majority came in on the mandate of transparency in government. “Where is the opportunity to study this bill?”
The bill heads back to the House, where leadership has expressed skepticism over the Senate and governor’s plans. The original House version of HB3300 included no tax increase but phased out the personal income tax over more than a decade.
(Adams can be contacted at firstname.lastname@example.org)