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West Virginia Lawmakers: Faint Chance Remains for Tax Reform

photo by: Photo courtesy of WV Legislative Photography

State Senate President Craig Blair, R-Berkeley

CHARLESTON – While Capitol watchers wait for the special session of the West Virginia Legislature to resume as the state Senate and House of Delegates negotiate differences of opinion on an abortion ban law, efforts to provide tax relief might still be a distant possibility.

It’s been 20 days since both the Senate and House adjourned July 29 subject to call of Senate President Craig Blair, R-Berkeley, and House Speaker Roger Hanshaw, R-Clay. While Aug. 8 was mentioned as a possible date for lawmakers to return to Charleston, they overshot that date and it is not immediately clear when the Legislature will return.

The special session began July 25 and lasted five days before being paused after Republicans in the House refused to concur with changes the Senate made to House Bill 302, clarifying and modernizing the state’s abortion laws.

The House passed House Bill 301 on July 28, Gov. Jim Justice’s proposal for a 10% cut in personal income tax rates spread out across all six tax brackets. Instead of taking up HB 301, the state Senate refused to accept the message from the House that the bill passed.

Instead, the Senate adopted a resolution laying out its plans for a future elimination of tangible personal property taxes if voters approve Amendment 2 in November. The constitutional amendment would give the Legislature the authority to reduce or eliminate six categories of tangible personal property taxes.

Disagreements – with Justice and House Republicans on one side and Senate Republicans on the other – have divided the GOP majority. Opponents of the 10% personal income tax cut believe it is too small to be effective tax relief, while supporters believe it will provide the most relief and be the first step towards a total elimination of the personal income tax.

Opponents of complete elimination of tangible personal property taxes are concerned about counties and county school systems being reliant on direct state funding from the general revenue budget contemplated by the Senate’s proposal and what effect future economic downturns could have, while supporters believe it will spur significant industrial and manufacturing development.

Both sides believe there is an opportunity for compromise or a melding of both tax relief proposals, but what form a potential compromise could take remains to be seen. Until then, both sides remain firm in the key parts of their tax reform plans.

House Finance Committee Chairman Eric Householder, R-Berkeley, has come up with a compromise plan. The Householder plan would require the Senate to support Justice’s 10% personal income tax cut, which would return $250 million to taxpayers backdated to Jan. 1.

“The focal point of all negotiations has to be the Governor’s income tax cut,” Householder said by phone Wednesday.

If the Senate can get behind the personal income tax cut, the House would support eliminating tangible personal property taxes on inventory, vehicles, computer equipment, leasehold investments, and furniture and fixtures once Amendment 2 is approved by voters. Householder’s plan would also include a Senate proposal to bump state employee retirees earning less than $1,000 per month up to $1,000, plus provide a one-time $1,500 cost of living payment to state employee retirees.

The Householder proposal, combined with Justice’s 10% personal income tax cut, would return approximately $512 million to taxpayers, with the public employee retiree proposal costing $26.5 million.

“You’re getting more than 50% of what you asked for,” Householder said. “Everybody gets a little bit of what they want, and our citizens win.”

Householder also pitched Blair and Senate Finance Committee Chairman Eric Tarr, R-Putnam, an alternative plan that would allow for the elimination of tangible personal property on machinery/equipment and vehicles plus the Justice 10% personal income tax cut and public employee retirement plan. That plan would return $650 million to taxpayers plus the $26.5 million public employee retiree benefit.

Speaking by phone Wednesday, Blair said he was open to compromise, but the majority of the Republican Senate caucus would not support any plan that doesn’t eliminate all six tangible personal property tax categories and they would not support any plan that only reduces personal income tax rates by 10%.

“That’s a no-go and (Householder) knows it,” Blair said. “That is not a valid pitch whatsoever … all the categories that would be affected by the personal property tax that is on the ballot November 8 have to be addressed. If they are not addressed, then it’s a no-go.”

Senate Republicans have their own proposal to reduce personal income tax rates by 10% ($250 million) using increases in consumer sales and use tax revenue as triggers. Another proposal would provide a rebate to West Virginia motorists for their vehicle personal property taxes for tax year 2020, returning $150 million to taxpayers.

“We want to do personal income tax as well,” Blair said. “We realize there may need to be adjustments. We understand that and that’s why the Legislature meets every year.”

Justice, who had a hostile tone aimed at Blair, Tarr, and Senate Republicans leading up to and during the special session, has since changed his tone and has expressed a willingness to compromise if it means coming up with a tax plan.

“From the standpoint of other plans or being willing to negotiate and all of that, I’m there. I’m there 1,000%,” Justice said Monday during a virtual briefing with reporters at the State Capitol Building.

Justice said he could see including elimination of vehicle tangible personal property taxes in a compromise that includes his 10% personal income tax cut. Justice continued to express concerns about elimination of all six tangible personal property tax categories, accusing Senate Republicans of supporting out-of-state corporations over West Virginia residents.

“I’ve always been there welcoming negotiation and everything … there’s folks on the Senate-side that don’t want to do that,” Justice said. “The reason for that probably is that they want to expend all the dollars in a direction that I think, personally, is very risky to say the very least. And it benefits … our very larger corporations — and many of them are out-of-state corporations – over favoring our workers.”

Blair said the Senate Republican caucus is willing to negotiate, but all three sides – the Governor, the House, and the Senate – needed to come together instead of the Governor and the House ganging up on the Senate.

“We are not going to come in and have two-on-one basketball where the Senate has to acquiesce to a 10% reduction in the personal income tax that does absolutely nothing. It’s pennies on paychecks for the people of West Virginia,” Blair said. “No dice. We will stand firm all the way until November. If people vote down the personal property tax amendment in November, then it’s a whole different ball game.”

Democratic lawmakers in the House and the Senate are watching closely to see what, if any, compromise could come out of negotiations between the Governor and Republican lawmakers. The Democratic caucuses in the Legislature supported a bill to reduce sales tax rates earlier this year, as well as a 30-day pause in the 35.7-cent gasoline tax with neither proposal receiving support from Republicans.

House Minority Leader Doug Skaff, D-Kanawha, said that with the state ending fiscal year 2022 with more than $1.3 billion in tax revenue surplus, Republicans will need to explain why they can’t provide tax relief for all West Virginians.

“You can’t go out there and talk about these huge record surpluses on the backs of the taxpayers of West Virginia,” Skaff said Wednesday during an interview on the Mountain State Views podcast. “Now it is time to give back. A lot of things have changed since January and February. We had record gas prices, record inflation … People are hurting. People need relief, and that’s why you hear the Democratic Party saying what can we do to provide meaningful tax relief.”

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