WV Senate revenue proposal would raise sales tax to 7.25%

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West Virginia Senate leaders began crafting a counter-offer Monday to the House of Delegates’ revenue plan with a new proposal that would restore the Senate’s proposed cuts in income tax rates but would increase the state sales tax to 7.25 percent — matching California for the highest rate in the nation.

In the latest volley and return in an effort to get the revenue bill (House Bill 107) into a House-Senate conference committee to hash out differences, the Senate Select Committee on Tax Reform struck the plan that the House advanced Friday — which would raise about $100 million a year in new revenue primarily by eliminating a number of sales tax exemptions but would keep the sales tax at 6 percent and would wipe out a Senate plan to cut income taxes by about $380 million a year.

On Monday, Senate Select Committee Chairman Robert Karnes, R-Upshur, scoffed that House Republicans had capitulated to support what he called a “Democrat bill.”

“I think the average person out there in the state understands that, if the House Republicans have gotten tee-totally on board with House Democrats and Senate Democrats, then what you really have is a Democrat bill that House Republicans have capitulated and signed onto,” Karnes said.

Karnes was referring to a statement Friday by House Speaker Tim Armstead, R-Kanawha, after the House’s 74-17 passage vote of the revenue plan, suggesting that House Republicans and Democrats, along with Senate Democrats, had “sent a message” to Senate Republicans rebuking their proposal to raise sales taxes and lower income taxes.

“The House’s bill is essentially a pure tax increase and, at some point, the Senate has said we’re not interested in raising another tax and kicking the can down the road,” Karnes responded Monday.

Earlier Monday, Senate President Mitch Carmichael, R-Jackson, said Senate Republicans remain committed to cutting income taxes as a way to grow the economy but said he is uncertain if the Senate can persuade 25 House Republicans to change their votes from Friday.

“I don’t know that we can,” Carmichael said. “It’s frustrating that people don’t see the value of reducing the income tax and allowing people to keep more of their own money. It’s kind of like convincing people the world is not flat.”

Critics of the Senate/Gov. Jim Justice compromise point to states, including Kansas and Oklahoma, that did not experience significant economic growth after making major cuts in income tax rates, resulting in massive budget deficits in both states.

Carmichael reiterated Monday that he believes the Senate’s proposed phase-out of income taxes is a prudent approach.

“We don’t want to mirror a Kansas or somebody like that, that doesn’t have the revenue to support vital government services,” he said.

Voting on partisan lines, Select Committee members Monday struck out most of the House plan, but kept and accelerated a House proposal to exempt Social Security income from state income taxes — a change that required upping the Senate’s proposed increase in the sales tax from 6.95 percent to 7.25 percent.

Also, in restoring the Senate’s proposed income tax cuts, the committee eliminated a previously agreed-to 6 percent rate for income of $250,000 or more, and rejected a motion by Sen. Robert Plymale, D-Wayne, to restore the so-called surcharge on the wealthy.

Senate Majority Leader Ryan Ferns, R-Ohio, and Sen. Craig Blair, R-Berkeley, said Senate leadership is unwilling to compromise again on that issue, after getting burned by Senate Democrats and by the House.

Committee members also rejected on party lines a Plymale amendment that would have retained most of the House’s proposal but would have maintained sales tax exemptions for building contractors and for digital downloads, in exchange for increasing the sales tax to 6.5 percent.

He said that would resolve budget deficits for the next couple of years without requiring major cuts to higher education and other programs, while allowing time for the Legislature to thoroughly study tax reform.

Plymale said the 7.25 percent sales tax would hurt businesses in his district, particularly since Huntington also has a 1 percent municipal sales tax.

“We’re at the breaking point for me,” he said. “I cannot go that high.”

Carmichael, however, earlier downplayed concerns over increased sale tax rates in border counties.

“This worry about cross-border purchases over a 1 percent or 1¼ percent rise in the consumer sales tax is, in my view, not a concern,” he said.

Next stop for the bill is the Senate Finance Committee, which is expected to meet this morning.

Carmichael said he wants to be able to send the revenue bill back to the House as part of a package of bills, including the governor’s bills to raise revenue for road building and Justice’s yet-to-be-introduced budget bill.

Monday was the eighth day of the special session to come up with a 2017-18 state budget plan.

Typically, each day in special session costs $35,000 in legislators’ per-day pay and expenses. However, the House is in recess until 4 p.m. today, and did not meet Monday.

Reach Phil Kabler at philk@wvgazettemail.com, 304-348-1220 or follow @PhilKabler on Twitter.

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