West Virginia Tax Reform Talks Conclude Without a Resolution
CHARLESTON — Despite presenting an updated personal income tax cut plan, Gov. Jim Justice and legislative leaders ended a summit meeting Monday with little hope of a compromise with the House of Delegates or state Senate before the end of the session Saturday.
Justice held a summit Monday afternoon with majority and minority leadership of the House of Delegates and state Senate at the Culture Center in Charleston, trying to bridge disagreements between Justice’s personal income tax cut plan and the two plans pushed by both chambers over the last few weeks.
“The monies are the people’s monies,” Justice said. “They’re not our money, and I’m trying to put money back into people’s hands and I’m trying to do something that’s really going to be beneficial, and I know you all are trying to do the same thing. Let’s just keep working.”
House Bill 3300 is the current incarnation of a plan to phase out the personal income tax.
The bill is up on third reading and passage today with the right to amend.
As long as the bill remains in its current form, it’s likely that the House of Delegates will not accept the changes the Senate made to the bill, requiring a conference committee to come to a compromise. And both bodies never moved on the governor’s personal income tax plan, House Bill 2027 and Senate Bill 600.
Justice presented lawmakers Monday an amended plan, called “Justice 4 All.” The new plan includes $998.2 million in tax cuts.
Instead of reducing personal income tax rates by 60 percent, the new plan would reduce rates by 50 percent. The previous version didn’t cut taxes for personal income tax rates for small businesses, pass-through entities, sole proprietorships, or investment income. The “Justice 4 All” plan would cut those rates by 33 percent. It also keeps the tax rebate for individuals and families earning less than $35,000 per year.
Many of Justice’s tax increases to offset the revenue loss from cutting the personal income tax remain, including raising the consumer sales and use tax from 6% to 7.9%, though it removed lottery tickets from the tax. It still removes sales tax exemptions on professional services. It keeps a consumption tax on luxury goods and most of the tobacco taxes. It does include a lesser tax on e-cigarette and vape products, and eliminates previous tax increases on beer, wine, and liquor.
To address complaints from the coal and natural gas industries, the “Justice 4 All” plan also includes a retooling of Justice’s proposed tiered severance tax. The updated tax increases for sales, excise, and severance taxes would raise $812.6 million in revenue, leaving a gap of $177.6 million to be filled by estimated growth, state payroll reductions through retirement and attrition, and $25 million in budget cuts.
“I have given you a pathway here that is so gentle, and it helps every single person,” Justice said. “I’m begging you: talk with me, work with me, and let’s some way, somehow not let this opportunity miss.”
The “Justice 4 All” plan would need to be presented as an amendment by a state senator when the Senate gavels in to debate HB 3300, otherwise it has no hope of being put into the new bill.
The Senate version of HB 3300 would reduce personal income tax rates by more than 50 percent for all but investment income. The plan would reduce revenue from the personal income tax by $1.09 billion.
The Senate plan would raise the consumer sales and use tax from 6 percent to 8.5 percent, remove sales tax exemptions for professional services, reinstate the food tax at 2.5 percent; tax prepared food at 8.5%; a 4.3% tax on short-term lodging; an 8.5% tax on contingency-based legal settlements; and create a new lottery scratch-off game. Revenue from these tax increases would bring in approximately $890 million.
The Senate plan creates a Stabilization and Future Economic Reform (SAFER) Fund. For every $100 million collected by the fund, the transfer would reduce personal income tax rates by 12.5 percent in the following fiscal year. The revenues to the SAFER Fund would come from increases in various tobacco and e-cigarette taxes, raising more than $73 million for the fund.
Justice criticized the Senate version of HB 3300 for coming down harder on working families by removing his tax rebate and by reinstating the food tax. Senate Minority Leader Stephen Baldwin, D-Greenbrier, asked if removing those items would make or break the bill for Justice.
“That’s a part of the plan that our caucus really likes, because we’re really concerned about those on the bottom and how this would affect them moving forward,” Baldwin said. ”
The version of HB 3300 passed by the House last Monday would phase out the personal income tax by $150 million in its first full year and annually until the tax is gone without new taxes or increases of existing taxes. The House version includes an Income Tax Reduction fund, which skims off tax revenue from special revenue sources and existing income streams to help accelerate the tax cuts while also encouraging decreased government spending. Estimates put a full phase-out in the House plan at between 11 and 17 years.
House Minority Leader Doug Skaff, D-Kanawha, said he supports a personal income tax phase-out in theory but has concerns that this isn’t the right time.
“We’re here on day 55 … the timing is all I question,” Skaff said. “The people coming out of a pandemic want certainty, reliability. They want to get their feet back on the ground. They want to have a business climate they can believe in. I question the sense of urgency that we have to do it today.”
Both House Speaker Roger Hanshaw, R-Clay, and Senate President Craig Blair, R-Berkeley, praised Justice for getting the conversation started on personal income tax reform, but comments made at the closing of the summit appeared to close the chapter for this session.
“It’s a component of an overall strategy,” Hanshaw said. “I think everybody here around this table today is committed…but this (personal income tax reform) must be part of our strategy to get people to move to West Virginia…I think between these three plans there is a path to get this done.”
“I’m not too bothered about waiting,” Blair said. “Dragging this on forever doesn’t get the job done, but are we prepared to do this today? No, but maybe tomorrow. The sooner the better.”