By Stephen Smoot
As part of the State of the State Address last week, Governor Jim Justice rolled out his tax reform plan for consideration by the people and the Legislature. With both Roger Hanshaw, Speaker of the House, and Doug Skaff, House Minority Leader, jointly introducing the bill to the House of Delegates, the reform package carries the currently rare mark of real bipartisanship.
In his unique way, Justice introduced the proposal by stating that he has held discussions on the issue with both House Speaker Roger Hanshaw and Senate President Craig Blair. He related that they said, in essence, “over and over and over that what we need to do in regards to the PIT (personal income tax) is they wanted to think, either don’t do it or make a big splash. That’s all there is to it. Either don’t do it or make a big splash. So here comes me, cannonballing into the pool.”
Justice added, “By God, I’ll make a big splash. I’ll promise you that.”
Tax reform has emerged in the past year as an issue. The massive Proctor and Gamble manufacturing complex built in Berkeley County several years ago served as the opening of a flood of business and manufacturing businesses locating in West Virginia. The Eastern Panhandle and Ohio River Valley in particular have seen large upticks in activity. As business tax collections rise along with natural resource severance taxes, officials have determined that personal income taxpayers no longer need to bear so much of the burden.
Delegate Elias Coop-Gonzalez relates that “a considerable cut to the state income tax has been long overdue.” He adds that “as it stands, West Virginia currently has the highest tax rate among all the surrounding states.”
Last fall, tax reform proposals took the form of a state Constitutional amendment that ultimately failed. Reformers tried to target the personal property taxes that provide the lion’s share of support for county governments. They proposed that the State Legislature could issue payments to counties to backfill what counties would lose. Governor Justice and the Pendleton County Commission feared that counties could ultimately be left high and dry if they did not control their own dedicated source of revenue.
Justice led a crusade, traveling the state to discuss his opposition. Not only did the tax reform amendment fail, but the other unrelated amendments’ chances of passing dwindled as well.
The tax bill laid out by Justice focuses entirely on cutting personal income tax rates by up to 50%, described by the Governor as “the biggest tax cut in the history of the state.” If passed, the Governor’s plan would provide for a 30% reduction in tax year 2023, 10% the following year and 10 more percent the year after that.
As Delegate Gary Howell, R-Mineral, chairman of the House Economic Development and Tourism Committee says, “if the bill passes, it will take several months to get the tax tables out. After the new tax tables are out, you will see more money in your paycheck.” He explains that “if you buy a big screen TV, the six percent sales tax will generate revenue for the state.” With the tax cut, Howell says “you’ll be better off, the businesses you patronize will be better off, and the state will be better off.”
According to Cam Matheny, a Jackson County based certified public accountant, “the cuts are fairly straightforward.” Furthermore, he agrees that because many West Virginia households would spend the money, the state would recoup a large amount back in sales taxes. “The wealthy will see the most benefit because they will most likely not spend all of their tax savings and will instead invest or save more.” Of course, when the extra money is saved, local community banks benefit from having more capital with which to operate as well. Higher interest rates also make putting the money in savings a more lucrative proposition than before.
Matheny also noted that the Legislature in this session seems uninterested in lowering the business tax.
Senator Robert Karnes, one of Pendleton County’s two representatives in that chamber, built on what Matheny described. He explained that, “there is a velocity of money related to the number of times a dollar is spent. Every dollar that gets put back in taxpayers’ pockets gets spent seven times in the community.” Through sales taxes, gas taxes, and more, the state can recoup its money, help taxpayers, and boost the local economy at the same time. Karnes noted that it will not be a 100% offset immediately, but “when there’s more commerce and jobs, we will collect more revenues.”
Howell agrees that dollars in the community act more dynamically in the wallets of the people. He stated that a dollar in government hands only has a 33-cent benefit to the community while each dollar returned as a tax cut has a multiplier effect of three times. Additionally, he says, “by year three, there is an incentive for you to move to West Virginia. If you are living and near Harrisonburg [Virginia] and you want to buy a new home, you will drive 10 or 20 more minutes farther to pay less taxes.” With Pendleton and other Potomac Highlands counties poised to join a program to recruit out of state remote workers, tax reduction could also boost results there.
Late last month, Senate Finance Committee Chairman Eric Tarr shared some of his chamber’s ideas with West Virginia Metro News. Similar to the proposed amendments, Senate leadership wants to, as West Virginia Metro News wrote, craft a “$460 million rebate plan connected to the annual car tax and six categories of property taxes including the machine, equipment and inventory tax. He’s also a talking about a possible 15% cut in income tax that would total approximately $335 million.”
Karnes stated that his own chamber serves as the reason why tax reform has not happened yet. “The House has wobbled a lot,” he says, “but settled on income tax reduction.” Karnes added that “hopefully we don’t waste another year.” Coop-Gonzalez speculated that “I hope that the Governor and the Senate can come to an agreement. There might still be some tension between them after the debacle surrounding Amendment 2.”
Karnes provided evidence on why he feels reducing the income tax should take priority, “Nine states don’t have income tax. They have added 32 congressional seats. Then there are states that don’t have a personal property tax. Since the 1970s, these states have lost seats in Congress.” He added that he opposed Amendment 2 because if the state controlled the main source of funds for counties, the “slush fund” as he described it, could be used to punish local government if they or their senators or delegates voted against leadership’s wishes.
He added that last fall, “the voters spoke very loudly” when they rejected Amendment 2, but advised “there’s a process and people should watch that process play out.” Karnes added that, “the House gets it. Going back to it (Amendment 2) would be a slap in the face of voters.
Others feel that the Governor and Legislature should direct the surplus toward spending priorities. Charles Burgoyne, former Pendleton County commissioner, speculates that the Governor may be “playing politics,” saying that “I am against his proposed tax cut and the surplus money should be used to address major issues facing West Virginia.” Burgoyne explains that approved construction plans by the state School Building Authority and PEIA reimbursements remain significantly underfunded.
Burgoyne adds that he would like to see the state provide assistance to helping rescue squads maintain vehicles and staff. He also shared concerns that the state struggles to maintain full staffing at schools and correctional facilities. He says that “these are real issues that can only be improved when everyone works together,” but “the Governor is only interested in political statements . . . Who is not interested in tax cuts or refunds?’
In November, Delegate Bryan Ward shared his concerns about the impact of tax relief during rising inflation, saying “we must be mindful that the surpluses we have experienced over the last several years are not guaranteed,” adding that economically, “so much is unravelling right now. Everyone knows there is a likelihood that we will be in a recession.” Ward also stated that state government works under the same inflationary rules as everyone else and that costs may continue to rise.
