On day 58 of the 60-day regular legislative session, the fate of a West Virginia income tax cut/sales tax hike proposal, and what final form the 2021-22 budget will take, remains unclear, after the Senate passed new versions of both in a contentious Wednesday night session.
As of Thursday evening, the House of Delegates had yet to formally receive either House Bill 3300 and House Bill 2022 from the Senate, amid bipartisan concern over the latest incarnation of a plan to slash state personal income taxes, while making up some of the lost revenue by hiking sales taxes and eliminating several exemptions in existing law.
Thursday afternoon, Sen. Mike Romano, D-Harrison, said he understood that the bill is dead in the House, for the reasons raised in the Senate floor debate Wednesday night.
“This personal income tax bill was rushed so fast, even your members didn’t know what was in it,” he told Senate President Craig Blair, R-Berkeley. Romano raised objections to leadership moving the new version of the bill without knowing fiscal implication and with no input from economists or tax experts.
The latest version of the tax proposal passed the Senate on a narrow 18-16 vote during a heated late-evening floor session. The bill advanced, despite complaints from senators that they were being asked to vote on the new plan just two hours after they received it, and without any idea of what the new proposal will cost the state.
At least two senators cited Senate Rule 15a, which requires that bills having a financial impact be accompanied with a fiscal note detailing the effects of those changes.
“You’re not going to hide from the people of West Virginia the fiscal impact,” Sen. John Unger, D-Berkeley, told Blair, after his request under Rule 15a was denied.
A motion to recommit the bill to Senate Finance by Minority Leader Stephen Baldwin, D-Greenbrier, was rejected by senators on a party-line 11-23 vote.
The 11th-hour version of the tax plan would cut income taxes by an estimated $818 million in the first year, less than the $1.07 billion cut in the Senate’s original proposal and less than the $1.06 billion cut sought by Gov. Jim Justice, but considerably steeper than the House plan to more slowly phase out the tax in annual multiples of $150 million.
The new plan also proposes an increase in the state sales tax by 33%, from 6% to 8%, nearly the same as the 7.9% rate Justice proposed but lower than the original Senate proposal of a hike to 8.5%.
Soft drinks would be taxed at that 8% rate under the new proposal.
It also eliminates several sales tax exemptions for professional services, advertising and other activities. It does not, however, restore sales taxes on groceries, as the original Senate proposal did.
It also features a tiered severance tax plan favored by Justice that would use higher severance tax rates if prices for coal, natural gas and oil top thresholds to partially offset income tax losses. That’s still counter to the House plan, which does not increase other taxes, setting up a mechanism to rely on anticipated economic growth to provide revenue to offset the annually increasing losses in income tax revenue.
The plan also provides rebate checks to people making $35,000 a year or less, who otherwise would see a higher tax burden under the proposal, albeit in smaller amounts than the rebates that Justice has said are integral to his plan.
Justice, in a statement Thursday, applauded Senate Republicans for pursuing the tax plan. He called on House members to reconsider their opposition to the tax cut/tax increase option.
“We will continue to work with members of the House to get this bill across the finish line,” Justice said. “I truly believe that, as we share with them the undeniable benefits of our plan, it will become clear that the repeal of the personal income tax will make life better for all West Virginians.”
Justice added, “I continue to encourage the House to be open-minded and to stop scaring people by distorting the impact of small tax increases, while leaving out the large magnitude of the tax deductions and the rebate checks that are also part of the plan.”
House Democrats, meanwhile, issued a statement opposing the Senate Republican plan, calling it a tax shift, not a tax break.
“This tax increase does not help working West Virginians. It is a tax break for wealthy West Virginians at the expense of everyone else,” Delegates Doug Skaff, D-Kanawha, and Shawn Fluharty, D-Ohio, said in the statement. “It hurts small businesses. It hurts border counties. It hurts consumers.
“We will not support any plan that raises taxes on West Virginians, shifts the tax burden to West Virginians or cuts funding from current state programs like the Promise Scholarship, programs for our seniors, and funding our schools,” the delegates stated.
Meanwhile, Wednesday’s Senate action on the budget bill moved the Senate and House versions of the bill closer to agreement.
Senate amendments adopted Wednesday mostly restore major budget cuts the Senate budget had made to West Virginia University, Marshall University and the Educational Broadcasting Authority, which operates West Virginia Public Broadcasting. The Senate version of the spending plan had cut WVU’s general revenue appropriation by $12 million, Marshall’s appropriation by $6 million and had zeroed out funding for Public Broadcasting.
The amended budget bill would fund WVU at $95.56 million, about $1.5 million less than the $97.02 million appropriation in the governor’s proposed budget. Marshall would receive $46.06 million, about $700,000 less than the $46.76 million recommended in the governor’s spending plan. The bill now restores $3.77 million in EBA funding, about $60,000 less than the governor’s plan, but vastly improved over no funding.
The funding levels are consistent with a mandate in the Senate version of the budget plan directing virtually all state agencies and offices to cut spending by 1.5% in the coming budget year.
The House version features steeper funding cuts to WVU and Marshall in the base budget, but fully funds both using a portion of what is expected to be more than $200 million in unspent revenue from the current 2020-21 budget.
On Thursday, Justice issued a proclamation extending the 60-day legislative session by one day to complete work on the budget bill, if necessary. The regular session ends Saturday.
For the past three years, the Legislature had broken with precedent by passing the budget bill during the regular session, and not requiring an extended session for the budget, although one had been given.