West Virginia’s bridges, dams, drinking water, roads and wastewater have received a D grade from the American Society of Civil Engineers, and 24% of the state’s residents live in a broadband desert. Furthermore, 54% live in a child care desert and 19% of children in the state live in poverty.
West Virginia has an opportunity to receive federal money to tackle these challenges head on. The proposed American Jobs Plan and American Families Plan invest in the physical infrastructure and people of West Virginia. They outline spending a total of $115 billion repairing roads and bridges, $111 billion on safe drinking water and another $50 billion to protect the nation’s infrastructure against extreme weather events. These robust plans would improve health care facilities for 140,000 veterans in West Virginia, expand health insurance to 31,000 of our residents who lack it today, provide nearly 450,000 West Virginians with tax cuts via Child Tax Credit and Earned Income Tax Credit expansions and lift 22,000 children out of poverty, among numerous other investments.
To offset the costs, the plans propose clawing back several tax breaks for profitable corporations and for taxpayers who make more than $400,000 a year. They include pushing the corporate tax rate to 28%, still lower than the 35% rate that was in effect before the 2017 tax law slashed it.
They also would return the top personal income tax rate on “ordinary” income to 39.6%, where it stood before the 2017 tax law cut it to 37%.
Other tax breaks curtailed under the Families and Jobs plans predate the 2017 tax breaks, like the rule taxing capital gains (profits from selling assets) and stock dividends at a top rate of just 20% — much lower than the tax rates for “ordinary” income such as wages. This tax break has long allowed people who live off their wealth to pay lower tax rates than people who work for a living. The proposals would repeal it, but only for millionaires.
Any taxable income beyond $1 million would be taxed at the same rate of 39.6%, regardless of whether it is capital gains or dividends or ordinary income.
Surprisingly, the capital gains and dividends proposal has caused discomfort for some lawmakers who say they worry about how it would affect the economy. Even if this were a valid concern in some states, it would not be in so West Virginia.
A recent study from the Institute on Taxation and Economic Policy found that only about 600 tax filers in our state would be affected by the proposed rate increase on capital gains and dividends next year. That is about 0.1% of tax filers in West Virginia.
Some critics argue that, despite the limited reach of the rate increase, it will nonetheless hurt the rest of us by discouraging those millionaires from investing in our economy. But it’s hard to see how that could be true in West Virginia. The study found that that the income subject to the tax increase, meaning the income of millionaires that is capital gains and dividends that would be taxed at a rate of 39.6%, would make up just 1.2% of the total income going to all West Virginians next year.
A higher tax rate on about 1% of the state’s income, all of which goes to 600 millionaires, would not hurt our state, especially when you consider the investments in the American Jobs Plan and the American Families Plan that would benefit us. Compared to the 140,000 veterans in West Virginia benefiting from improved health care facilities, 31,000 residents being newly insured, 22,000 children being lifted out of poverty and 51,000 school children gaining access to free school meals, the investments far outweigh the increased taxes on a tiny sliver of statewide income.
Like the rest of the revenue proposals in the Jobs and Families Plans, the tax change for capital gains and dividends is a commonsense reform that would make our tax code fairer. West Virginia’s congressional delegation should support it.