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Tax Relief Will Be Difficult

Just a couple of weeks ago, we reported that Republican leaders in the West Virginia Legislature have big plans for the lawmaking session that begins in January. They hope to eliminate the property tax on business inventory.

Then the report on August revenue came in. For the second month in a row, far less than had been expected was collected to cover the general revenue budget. At the end of the month, the state was nearly $50 million in the red. Why the bottom line was a negative one is troubling.

The two big, sharp knives in the backs of budget planners were personal income and severance taxes. Two months into fiscal 2020, severance taxes had brought in $26.8 million less than had been expected. That means the coal and natural gas industries are not performing as well as the budget analysts thought they would.

Which brings us to sharp knife No. 2: personal income taxes. Budget estimators had expected that by the end of August, $298.6 million would flow in from that source. Actual collections were $21.7 million under projections. Income tax revenue is based on how much people are earning.

Off to a lesser extent was revenue from consumer sales taxes. Two months into the fiscal year, that line was $3.6 million below estimates.

State Road Fund collections by the end of August were $37.6 million less than expected — but there was some good news there. For August alone, income was $17.8 million higher than projections — so perhaps that big fund is on the mend.

Still, the outlook isn’t good. One other number, from the monthly General Revenue Fund cash flow report, raises eyebrows. Last August, the fund collected $5.4 million more than was paid out of it. This August, it paid out $59.1 million more than flowed in.

So you see the concern: Will legislators look at budget numbers in January and February and conclude there’s no way of granting any tax relief?

Getting rid of the property tax on business inventory, including manufacturing equipment, has been a goal of job creators for years. The levy “is the single biggest job killing tax in our state,” state Senate President Mitch Carmichael, R-Jackson, said in late August.

It’s a big figure: an estimated $400 million a year. You can see why some businesses would prefer to go to a state without a similar tax, rather than be in West Virginia — or, as Carmichael noted, to have operations here but keep their expensive equipment elsewhere.

Lawmakers are well aware that public schools and local governments are big beneficiaries of the tax. Taking that money away from them would be political suicide — and rightly so.

Eliminating the tax isn’t just a matter of dollar amounts. Doing so would require an amendment to the state constitution. Proposing such a change requires a two-thirds majority in both the state Senate and the House of Delegates — then ratification by voters.

Even if Republican lawmakers could find a way to replace the lost revenue, the reaction from liberals is predictable: Such a move would be a tax break for rich manufacturers, they would claim. In a state where registered Democrats still outnumber Republicans, that could mean failure in the required referendum.

Why not use the $400 million to expand Medicaid even more, liberals would ask. Or to pump more money into public schools.

What we need (see personal income tax figures) is more good jobs in West Virginia — with more people paying taxes, of course. And here’s the thing: We know there aren’t many jobs in natural gas production. It’s the “downstream” industries, using gas byproducts to manufacture things, where the opportunities are.

Are executives of one of those downstream companies going to want to come to West Virginia, where they’ll be taxed on inventory and equipment, or go elsewhere?

So legislators hoping to provide that $400 million a year incentive are to be wished good luck.

They’ll need it.

Myer can be reached at: mmyer@theintelligencer.net.

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