MORGANTOWN – Senate Finance took up and barely passed the third and newest version of the income tax reduction plan.
The committee approved what’s called a strike and insert for HB 3300 – meaning it replaced the House bill with its own. It has more in common with the governor’s plan but replaces some lost revenue in different ways.
The vote was 9-8 and a couple unusual things occurred along the way. First, the Washington, D.C.,-based Tax Foundation received a copy of the bill over the weekend and issued an analysis of all three plans early Tuesday before the committee or the public got to see the new version.
Second, there were two roll-call votes taken but the audio feed was off for both of them. So except for a handful of people in the room, no one knows how the senators voted. Committee vice chair Dave Sypolt, R-Preston, was acting as chair and apologized for the error and said the votes would be recorded in the meeting minutes.
The bill creates a new fund called SAFER – Stabilization and Future Economic Reform. It will be fed by receiving 50% of any budget surplus minus any unappropriated revenue; this would happen each year that the two Rainy Day Funds equal 23% of the rolling average of the previous seven fiscal years.
When the SAFER balance is $100 million, $50 million is transferred to General Revenue and the personal income tax is reduced. Each tax bracket is reduced proportionally to its contribution to total income tax collections. If there is no revenue increase, there is no reduction that year. SAFER is also intended to smooth budget years seeing one-time cuts and volatile tax collections.
The estimated immediate revenue loss would be $1.087 billion.
The loss would be partially offset by a series of hikes and new taxes:
- A new hotel fee of 4.3%, to raise about $25 million per year;
- raising the sales tax from 6% to 8.5% and taxing some new areas including digital downloads and radio, TV and newspaper ad sales, to raise $625 million;
- taxing legal, engineering, architectural and accounting services 3%, for $90 million;
- food tax of 2.5% and prepared food tax of 8.5%, $67 million;
- raising the cigarette tax from $1.20 to $2.20 a pack, other tobacco products form 12% to 19% of wholesale, vape liquids from 7.5 cents per milliliter to 35 cents, total $80.75 million.
A plan to eliminate the 1 cent soda tax – which contributes about $14 million to WVU’s medical, dental and nursing schools – and replacing it with the 2.5% food tax was amended out after testimony from WVU and voiced concerns from the three physicians on the committee. This will reduce the estimated food tax revenue by this amount.
A large chunk of the bill is devoted to a regulatory program to be prepared for federal legalization of marijuana. Tax and fee revenue is estimated at $45 million when the time arrives.
The presentation gave conflicting figures for the projected income tax revenue loss: $1.087 billion at one point and $1.047 billion at another. Whichever is correct, the net offsetting revenue from all the new taxes and hikes is $932.05 million. But the includes the nonexistent marijuana revenue and the food tax revenue that will have to be adjusted down.
The presentation to the senators included some example tax bracket phase-downs. The $25,000-$40,000 income bracket, for is now taxed at 4.5%. Year 1 of the plan, that would drop to 2.21%; year 2, 2.1%; year 3, 1.44%; year 4, .67%.
The Tax Foundation analysis observes that the Senate plan is more business friendly than Gov. Jim Justice’s because it reduces income taxes for the small businesses that make up 95% of the state’s businesses. Justice’s plan doesn’t and that has earned him opposition from the Chamber of Commerce and the Business and Industry Council.
It also observes that the House plan is impractical because it phases out the income tax with no alternative revenue offsets, relying solely on growth, which leaves the potential for big budget holes. It notes, though, that the House plan was most likely a “placeholder” to keep an income tax bill alive as Crossover Day approached.
The analysis says the Senate plan shares some of the economically uncompetitive features of Justice’s plan but is more balanced.
Much of the discussion focused on the soda tax that was amended out after the committee recessed and returned.
But Sean Banks, general manager of WOWK TV and vice president of the West Virginia Broadcasters Association, objected to the advertising tax. He said 80% of WVBA members’ ad revenue come from local businesses. Customers won’t increase their ad budgets to account for the extra expense, they’ll just cut back on advertising or turn to out-of-state sources. That could lead to layoffs.
Florida tried an ad tax and saw ad revenue drop by 12% he said; the tax was such a failure it was repealed after two years.
Sen. Mike Maroney, R-Marshall and a physician, objected to the elimination of the soda tax and to the restoration of the food tax and the sales tax hike. The two hikes, he said, would pose a double whammy for seniors.
After the recess, he offered the successful amendment to restore the soda tax. He also dropped his objection to the double whammy after learning that SB 424, creating a fixed-income credit for low-income seniors would be on third reading for passage on Wednesday, which is Crossover Day.
With his concerns addressed, he said of the bill, “It’s a bold move. … This could be a big deal for West Virginia.”
Committee chair Eric Tarr, R-Putnam, took the vice chair’s seat so he was free to speak about the bill.
“We are in a critical time right now of opportunity,” he said. State revenues are growing and people want to move here. Phasing out the income tax requires a stable and broader base. The 36 million people who travel through the state will share the burden through the higher sales tax.
None of the eight who voted no spoke about the bill. It now goes to the Senate floor.
Tweet David Beard@dbeardtdp Email dbeard@dominionpost.com
