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Surprising Week 2 At The Legislature

If “tax cut plan” was on your legislative bingo card for this session, you get to mark the spot, but I bet you didn’t think the plan would come from Democratic lawmakers.

Last week, members of the House of Delegates and state Senate Democratic caucuses released a plan to reduce the consumer sales and use tax from 6% to 4.75% during the current fiscal year, with an additional 0.25% cut if the state’s Rainy Day Fund hits the $1 billion mark again when the new fiscal year starts in July.

The initial 1.25% cut would cost more than $312 million — nearly the same amount as lawmakers set aside for $315 million in matching funds that kick in after Nucor meets certain spending thresholds once it starts construction of a new steel mill in Mason County.

The $312.5 million would come from surplus tax collections for the current fiscal year, which are sure to top $400 million by the end of January. The next 0.25% — an approximate $62.5 million cost – would come out of the Rainy Day Fund if it remains at or above $1 billion.

Another 0.25% would be cut from the sales tax at the beginning of each fiscal year as long as the Rainy Day Fund continues to hit $1 billion. Theoretically, this could mean the sales tax could be phased out, though Senate Minority Leader Stephen Baldwin, D-Greenbrier, doesn’t think that is likely.

Baldwin is right. The unspoken thing right now driving these massive surpluses is the immense amount of federal dollars being spent both by individuals and the state government. I’d be very surprised if large surpluses continue past this fiscal year.

Sure, we’ll probably still do OK as long as the economy doesn’t take a serious hit. Inflation could still be going on, but the Bureau of Business and Economic Research at West Virginia University projects inflation to trend downward through this year and return to a normal rate by 2023.

According to the Bureau of Economic Research’s annual West Virginia Economic Outlook report, the sales tax accounts for 16% of the state’s revenues. It actually accounts for more tax revenue than the personal income tax that Gov. Jim Justice and some Republican lawmakers wanted to phase out last year. Personal income tax revenue makes up 11% of the state’s revenue (most of the state’s revenue — 27% — comes from the federal government).

Sources in the Governor’s Office raised concerns with me about whether the Democratic tax plan would violate the provisions of the federal American Rescue Act that prohibit using funds to either directly or indirectly reduce net tax revenue.

First, since the funds are coming from surplus tax revenue and the Rainy Day Fund, Democratic lawmakers believe this doesn’t violate that. Second, there are three federal lawsuits that have blocked enforcement of that provision. The U.S. Treasury Department is appealing those injunctions, but for now, that provision is not in effect. I’d also remind the Governor’s Office that the tax cut prohibition didn’t stop them from moving forward with their personal income tax phase-out last year.

I wouldn’t expect any movement on the Democratic sales tax proposal. But that does give the elected members of the minority party an opportunity to campaign for re-election saying they tried to cut your taxes.

As for whether Republicans will try again on personal income tax phase-out, don’t expect that this year. The focus is making sure the constitutional amendment on the ballot that would give the Legislature the authority to make changes, lower, or remove the tax on personal property passes.

As I broke last week, Rob Cornelius has been restored as an elected member of the Wood County Republican Executive Committee and as its chairman after being arbitrarily removed in 2019 by former state Republican Executive Committee chairwoman Melody Potter for, in essence, being mean to her and publicly criticizing Gov. Justice.

I have a question: does this mean that any decisions made by the state REC since the summer of 2019 are suspect? I ask because the current state party Chairman, Mark Harris, won by a narrow margin last year and only after a second vote had to be taken.

Harris won the first vote 57-55, with Roger Conley, the person Potter installed to replace Cornelius as Wood County REC chairman, voting for Harris. Cornelius, who was not allowed to be seated since he was no longer county party chairman while the legal case was pending, would have voted for former state GOP chairman Conrad Lucas. That would have changed the vote to a 56-56 tie.

When you factor in that four state party vice-chairs voted in the first round in violation of the party’s bylaws, Lucas would have won the first vote. But because different committee members had different vote totals and the secretary had no paper record of each member’s vote, the REC held a second vote. Harris won that 56-53 after one committee member switched his vote from Lucas to Harris and a proxy vote was changed to Harris (One of the four disqualified vice-chairs still voted on the second vote).

All I’m saying is the state Republican Party’s winter meeting should be interesting.

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