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Statehouse Beat: Cuts leave huge holes in state tax collection

Only in West Virginia could politicians argue over a penny, as we saw as Republicans and Democrats wrangle over who should get credit for repeal of the final 1 percent of consumer sales tax on groceries.The whole issue of the food tax being particularly onerous on the state's poor has always been a red herring, and particularly so for the state GOP.Indeed, when then-Gov. Cecil Underwood put together a panel of experts to modernize the state's tax system, the governor's Commission on Fair Taxation gave low priority to repealing the food tax:"Since many low-income individuals are able to pay for food with food stamps and WIC vouchers, which purchases are sales tax exempt, the Commission felt there were much better alternatives," the commission's 1999 report states.When then-Gov. Joe Manchin started the phase-out of the food tax, Tom Witt, then director of the Bureau of Business and Economic Research at WVU, was dubious about any economic benefits from the cuts. He was quoted in the Gazette as saying, "Astute voters realize this is just pandering."Now semi-retired, Witt made some clever Twitter comments over the kafuffle over who takes credit for elimination of the food tax. Among them, Witt pointed out that 55 to 60 percent of family food consumption occurs outside of grocery store purchases.(Meals in restaurants remain subject to the 6 percent sales tax, but at least West Virginia hasn't followed the lead of other states, including Virginia and Ohio, in allowing counties and municipalities to impose additional taxes on prepared meals.)Witt also quipped that he's waiting for the announcement of grocery stores opening in border counties. ...Speaking of taxes, news this week that a well-intentioned tax credit for alternative fuel vehicles had blown a $29 million hole in state tax collections for 2012-13 should serve as a cautionary tale for future Legislatures.The state has been allowing people to take write-offs on their personal income taxes, and businesses to credit either their corporate net or business franchise taxes, for purchases of alternative fuel vehicles since 1996. At the time, the credit maxed out at $3,750 for passenger cars, and $9,250 for trucks and commercial vehicles.However, a little-known codicil in the 2011 Marcellus Gas and Manufacturers' Development Act extended and greatly expanded the tax credit, to 35 percent of the purchase price of alternative fuel vehicles, and raising the maximum write-offs to $7,500 for passenger vehicles, and $25,000 for trucks and commercial vehicles.
Frankly, the media missed the boat on this one, myself included, since the primary focus of the legislation was to encourage investments in Marcellus Shale development, particularly including incentives to recruit one of those elusive cracker plants. (What -- you expect me to read fine print with these eyes?)And the bill (SB465) had good bona fides, with Sen. Brooks McCabe, D-Kanawha, as lead sponsor, and the other sponsors reading like a who's who of Senate leadership: Jeff Kessler, Richard Browning, John Unger, Herb Snyder, Ron Stollings, Robert Plymale, Erik Wells, Corey Palumbo, Bob Beach, Orphy Klempa, Jack Yost, and Dan Foster.Nor did the House provide any checks or balances, passing the bill 95-4 and sending it to the then-acting governor.
The fiscal note from the Tax Department, which should have raised red flags, put the fiscal impact of the legislation at $0, noting: "Provisions related to tax credits for alternative fuel vehicles would result in some decrease in revenue. However, the Tax Department does not have sufficient data to accurately estimate such decline."To its credit, the Tomblin administration backed legislation passed this session (SB185) limiting the tax credit to vehicles powered by natural gas or liquid propane only, and the fiscal note indicates that will provide an additional $10 million a year of revenue.From the state's perspective, not only are hybrid vehicle owners cheating the state by not paying their fair share of the gas tax, but also the state essentially subsidized their vehicle purchases....Finally, state tax collections for the 2012-13 budget year came in $90 million below estimates -- balanced by emptying a $45 million Income Tax Reserve Fund and by imposing spending cuts.That $90 million sounded a lot like the amount of tax cuts the Legislature has enacted recently, including another one percent cut in phase-out of the food tax last year, for $30 million.
To verify that the budget deficit was effectively self-inflicted, I checked in with Ted Boettner with the West Virginia Center on Budget and Policy -- an organization whose unofficial motto might be, no tax cut is ever justified.Boettner's numbers confirmed what I thought, that cuts in the food tax, corporate net and business franchise tax alone accounted for more than $110 million in lost tax revenue.As Boettner noted, the state collected more business taxes in 1999 than it did in 2013. Reach Phil Kabler at or 304-348-1220.
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