Senate Tax Plan Muddies Water

For most people, the word “compromise” conjures images of meeting in the middle, taking good components from two ideas and blending them into a new idea that works well for as many people as possible. It appears as though the West Virginia state Senate thinks of compromise as introducing a third idea so different from the first two that it likely will muddy the water to such a point that tax reform will not pass at all this session.

Last week, the state Senate Finance Committee adopted a strike-and-insert amendment to House Bill 3300 — the House of Delegates version of the personal income tax phase-out. The committee’s new version contains some elements of HB 3300 and Senate Bill 600, which is Gov. Jim Justice’s plan. This version comes across as more moderate than Justice’s, but more radical than HB 3300. It reduces the personal income tax by more than 50 percent initially, as compared with the 60 percent in Justice’s plan.

But it retains and amplifies some of the more controversial aspects of Justice’s plan. The new Senate plan raises the consumer sales tax higher than Justice wanted, to 8.5%. It retains Justice’s plan to remove several sales tax exemptions, making this transition even harder on employers. It reinstates the food tax at 2.5%, and 8.5% on prepared foods. It creates a new 4.3% tax on short-term lodging and a new 8.5% tax on contingency-based legal settlements. That’s just the beginning.

By the way, the plan still leaves a $200 million gap state senators hope will be filled by “natural growth” in tax revenue.

Far from coming across as a meet-in-the-middle compromise, many aspects of the new Senate plan are so extreme they might have been designed to make Justice’s plan look like the better option.

Meanwhile, Jared Walczak, vice president of the Tax Foundation, which reviewed the plans, said while there are aspects that “merit further consideration,” there are challenges, and that “a slower phase-in of rate reductions may be a worthy trade-off. …”

In other words, pump the brakes, folks.

Far more discussion must take place on the damage done by immediately implementing such extreme tax changes and increases, as compared with any advantage that might be gained in phasing out the personal income tax relatively quickly. Time is short, but the remainder of the session must be spent on ensuring we have a plan that will be best for all West Virginians, not an extreme turn in the wrong direction that will end in disaster as lawmakers scramble to repeal it a few years from now.


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