MORGANTOWN – After more than two hours of debate Wednesday night, the Senate narrowly passed the bill to phase out the personal income tax, with a 18-16 vote. It goes back to the House where it’s expected to die because the House has an entirely different plan.
The debate was often testy, with raised voices, repeated protests that Senate rules were being ignored that were overruled, and a rare challenge of a ruling by the president.
Contributing to the testiness was the late appearance of a fourth version of the plan in the form of an amendment that was adopted as the bill, which was released just a couple hours before the evening floor session resumed and viewed by some only 30 minutes before they reconvened, some said.
The amendment, produced and explained by Finance chair Eric Tarr, R-Putnam, incorporated much of the Senate Finance version unveiled last week with some additions from the governor’s new plan unveiled Monday. It also removed some tax measures that met significant opposition.
A summary of the amendment:
It 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 $818 million.
The loss would be partially offset by a series of hikes and new taxes:
- Raising the sales tax from 6% to 8 % (down from 8.5% in the Finance plan) and taxing some new areas, including digital downloads and radio, TV and newspaper ad sales;
- taxing legal, engineering, architectural and accounting services at 3%;
- raising the cigarette tax from $1.20 to $2.20 a pack, other tobacco products from 12% to 19.5% of wholesale, vape liquids from 7.5 cents per milliliter to 23 cents;
- levying a gross tax on the legal fees on contingency based legal settlements of 8%.
Gone from the Fiance plan are an additional hotel stay fee, a resumption of the food tax and a tax on marijuana sales when it becomes legal.
Incorporated from the governor’s plan are a tiered severance tax on coal, oil and natural gas, and the scaled, income-based rebates for households earning less than $35,000 per year. The rebate figures are lower than the governor’s, totaling $40 million instead of $52 million.
The income tax phase-down and the tax hikes would all take effect Jan. 1, 2022.
Because SAFER is intended in part as a smoothing mechanism, price-sensitive and volatile tax revenue is channeled directly into SAFER: any increase in severance taxes, the tobacco and vaping revenue.
There was no fiscal note accompanying the amendment that was adopted as the bill, which is required by Senate rules, and that caused consternation among many of the Democrats. Sen. Mike Romano, D-Harrison, moved to have the bill tabled because of that; the motion failed 11-23.
Sen. Bill Ihlenfeld, D-Ohio, cited the often-cited fact that cigarette tax hikes decrease sales. So retailers in his Northern Panhandle district aren’t concerned about SAFER but about seeing their gas stations lose money.
Sen. Mike Caputo, D-Marion, was among those who said the rebates won’t make up for the tax hikes for low-income households. A family making $30,001 to $34,999 gets $50 spead across four quarterly payments. “Tell me in simple terms how in God’s name that makes up for just the sales tax increase,” he said.
Responding to the same point later, Tarr said the bill would initially lower the income tax for a $35,000 household from $1,300 to $750, not counting the rebate.
Caputo said later, “I am befuddled beyond belief here about what’s going on. … I looked in my crystal ball, you’re going to have 18 votes … but I’m not sure that’s whats right for West Virginia. This is a poor, poor, poor way to do business.”
Romano said of the various figures Tarr offered, “The conclusions sound good, the devil’s in the details. … We shouldn’t have to guess. … Where’s the opportunity to study this bill?”
Citing the failure of the Kansas tax plan, he said, “We’re going to jump off the cliff holding hands and singing kumbaya.”
Tarr defended the plan, “The reason this path was chosen is because the number one problem that affects this state is loss of population.” They’ve looked at what other states have done and worked to avoid their mistakes.
President Craig Blair, R-Berkeley, has refused to back earlier demands to provide a fiscal note because they were considering an amendment, not the bill. So when the amendment became the bill, Sen. John Unger, D-Berkeley, demanded one again and Blair refused again.
Unger than challenged the ruling, which would overturn it if successful, but members upheld the ruling in a 24-10 vote. A motion to recommit the bill to Finance for further study also failed.
Responding to questions about the lack of transparency in unveiling the amendment so late with no time to study it, Blair said all the various components have been discussed for most of the session, they’ve just been compiled here.
Five Republicans joined the Democrats to vote no. All local senators voted with their party.
TWEET David Beard @dbeardtdp EMAIL dbeard@dominionpost.com
