During discussion in Senate Finance Committee Monday on how to close a potential $300 million fiscal hole that a proposed phase-out of a variety of personal property taxes would blow into county, school board and municipal budgets, Deputy Revenue Secretary Mark Muchow made a very astute observation.
Muchow — one of the sharpest minds ever to grace the hallways of the Capitol — noted that if the state’s dirt-low real property tax rates were comparable to rates in other states, that would provide an extra $1 billion a year of revenue. Billion with a “B.”
Like the trees forming a giant “W” in “It’s a Mad, Mad, Mad, Mad World,” Muchow showed us where the buried treasure is hiding in plain sight — and like the hapless characters in that movie, the senators missed the clue.
Since before the start of the session, and many sessions before, the West Virginia Manufacturers Association has been pushing the Legislature to repeal personal property taxes on manufacturing equipment, machinery and inventory — this being the latest incarnation of, “If we just cut this one last business tax, we’ll finally achieve economic nirvana.”
Senate leaders have spent much of the session struggling with the $100 million hole that elimination of the tax revenue would blow in the budget, along with the reality that, because the tax is written into the West Virginia Constitution, voters would have to approve a constitutional amendment to repeal it.
One can practically hear the anti-amendment campaign jingle, to the tune of The Band’s “The Weight”:
Take a load off corporate
Take a load for free
Take a load off corporate
And put the load (put the load) right on me
Realizing that might be a tough sell, Senate leaders this week tried to sweeten the deal by also phasing out personal property taxes on other business inventory, and — to appeal to the voting public — on automobiles.
That would grow the $100 million a year budget hole to at least $300 million a year — $200 million of which the Senate proposes to fill with a 0.5 percent increase in the consumer sales tax, and steep tax hikes on cigarettes, other types of tobacco and vaping products.
Which might be the most regressive tax proposal before the Legislature since 2017, when the Senate toyed with eliminating the state income tax, making up the lost revenue with a broad-based 8 percent sales tax that would have eliminated most sales tax exemptions in current law. With either proposal, low income and working class families would bear the brunt of the shift in taxes.
As Muchow alluded, this all dates back to the Great Depression, when legislators of the time saw people losing their homes and farms to foreclosure, and overreacted by lowering property tax rates to ridiculously low levels — and locked those rates in by putting them in the state constitution instead of state code, requiring approval of a majority of voters statewide to change them.
(According to John Morgan’s “West Virginia Governors,” when Gov. William Conley called for tax relief in his 1931 State of the State address, his comments showed how little things have changed in nine decades:
“During the past decade, our coal industry has been depressed, and more recently, certain other lines of business have felt the economic depression that has prevailed,” which he said was making the paying of taxes, “insurmountable in the case of many of our citizens.”)
According to USA Today, West Virginia’s real property effective tax rates are sixth-lowest in the United States, and less than half the national average.
Adoption of the Tax Limitation Amendment in 1932 set off a domino effect of repercussions, many of which are still felt to this day.
Counties no longer had sufficient revenue to maintain county road systems, so the roads were adopted into the state road system, giving a relatively small state a relatively large state road system, which it has struggled to maintain ever since. (See: “Roads, Fix the Damn”)
School districts no longer had sufficient revenue to operate, so the Legislature created county school systems, and took over the lion’s share of funding public education, and our school systems have lagged behind peers in other states ever since.
Municipalities were starved of revenue, and as harped on here on multiple occasions, while their counterparts in other states thrived and grew, West Virginia cities withered to the point where today, there are no true cities left.
In 1974, longtime Huntington Herald-Dispatch reporter Tom Miller wrote his seminal work, “Who Owns West Virginia?” a study revisited on a number of occasions, most recently in 2013 by the West Virginia Center on Budget and Policy and the American Friends Service Committee.
Although the overall numbers and private ownership groups have changed somewhat over the years — in Miller’s time, it was primarily coal and timber companies, while the 2013 study was dominated by managed timberland and Real Estate Investment Trust companies — the bottom line is that out-of-state corporations own a sizable percentage of the 13 million acres of private land in West Virginia, with the top 25 corporations owning about 18 percent.
The top five companies, accounting for nearly 1.4 million acres, are: Heartwood Forest Fund, Norfolk Southern Railway, Natural Resource Partners, Pardee Resources and Coastal Lumber.
In committee on Monday, one of the arguments for the Senate plan to shift tax burden from businesses to consumers was that out-of-staters pay a portion of sales and tobacco taxes while visiting the state, whether either on vacation or in transit.
Using that logic, what better way to raise revenue than to increase real property tax rates on property owned, to a significant degree, by out-of-state corporate interests, much of it being held for speculation?
Naturally, legislators aren’t keen on raising taxes on homeowners, even though owner-occupied housing has the lowest real property tax rate, and many West Virginians qualify for homestead exemptions on their taxes.
According to WalletHub, property taxes on a state median value home is $653, so even a 30 percent increase would only be $196, certainly in the neighborhood of what the Senate’s proposed 0.5 percent sales tax increase would cost many West Virginia families.
A small price to pay to bring in an additional $300 million a year in real property taxes, taxes that would be paid to a great extent by out-of-state corporations.
Thus, instead of giving tax relief to corporations to be backfilled by citizens, as Sen. Doug Facemire, D-Braxton, said Monday, corporations would be relieved of a personal property tax that they find onerous in exchange for paying real property taxes at a still-low rate, but one more comparable to rates in other states.
Of course, that didn’t happen after Miller’s report in the 1970s, and it won’t happen now, so long as a majority of legislators are beholden to corporate overlords who write big campaign checks, and give generously to dark money organizations that underwrite campaign attack ads.
The saving grace might be that the resolution for the constitutional amendment giving the Legislature authority to raise, lower or eliminate multiple categories of personal property taxes requires two-thirds votes in the Senate and House of Delegates for adoption, and then would have to be ratified by voters in November.
Which means Republicans need to pull three Democrats in the Senate and nine Democrats in the House across the aisle for adoption.
Republicans probably had more leverage before the Senate proposal to raise sales and tobacco taxes to close the funding deficit, in that they could have portrayed “no” votes against the resolution as legislators opposing tax cuts.