Update on HB 3300
Passed in the WV House: Tax breaks for the richest and the rest of us left to fend for ourselves
As we mentioned before, the West Virginia legislature now has a super-majority of Republican Delegates and Senators. This means that in both the House and the Senate, two-thirds of the Members are Republicans. Super-majority control gives one party – in this case the Republicans - a free hand to move forward a bill without any support or effort at compromise with other parties. And this super-majority gives the Republican party the power to put the brakes on any bill. (See our March 31 Cross-Over day legislative update here.)
A key priority for Governor Jim Justice and Republican leadership is cutting the state personal income tax. As we shared in our February 26th blog and in our March 26th blog, proposals to eliminate the state personal income tax are fundamentally dangerous and flawed.
So the reason I – as an economist – support a state personal income tax is this: it is progressive. That means that the more income you have, the more you pay in taxes. The rich pay more, the middle-class and lower-income person pays less. It is fair. So when you cut the state personal income tax, you are helping rich folks A LOT. And you are providing very little – if any – financial help to others.
In order to give big personal income tax breaks to the wealthiest West Virginians, these proposals will leave the state government with a huge hole in revenue. Remember that West Virginia must balance its budget – spending must not exceed revenues – unlike the federal government. Eliminating the state personal income tax will cut the total revenue that supports all functions of state government by about 43 percent.
The Governor proposed to replace about half of this lost revenue (that helps rich folks) by significantly raising another tax – the state sales tax. A sales tax is regressive – the opposite of a personal income tax. That is, the less income you make, the higher proportion of that income that you pay. A sales tax hits working lower income households the hardest. Think about it: the less income you have, the more of it (the larger proportion) you spend for stuff your family really needs and the less money you can save. Again see our February 26th blog.
It appears that the state sales tax increase made some members of the legislature a little nervous; cutting taxes for the rich and raising them for work families didn’t sound so great to their constituents or to voters across the state.
So House Finance Committee Chair Eric Householder came up with his own plan, HB 3300. This bill cuts the state personal income tax to give a break to wealthy folks and then just lets someone else figure out what to do about the huge state budget hole. HB 3300 passed in the House, 77 yays to 23 nays. While the language in the bill is definitely complicated if not downright twisted, don’t be fooled.
HB 3300 will set up an automatic mechanism to cut personal income taxes for the rich and restrict revenue flow into the state coffers. Can you imagine a business that deliberately chooses to restrict the mechanisms by which they can bring revenue in the door? The state – like any business – risks facing a shortfall if something unexpected happens (say a health epidemic….) or if expected sources of future revenue falter.
Rather, HB 3300 passes the buck from the legislators who voted for this scheme to future legislators. It does not state what programs will be cut now or in the future to accommodate the huge budget hole that HB 3300 creates. It is tying the hands of future legislatures and asking future legislators to make all the unpopular, painful cuts to many, many vital West Virginia programs that will be required to give this personal income tax break to the richest West Virginians. This is beyond just irresponsible law-making; it is the clearest kind of short-sighted and immature law-making.
To be clear, the bill’s so-called “Reduction Fund” provides no protection from program cuts or raising other taxes. It actually will trigger larger personal income tax cuts and drain additional existing revenue.
The Reduction Fund is funded almost entirely by existing revenue that is already supporting programs in the budget. $62 million in existing general revenue would be diverted into the fund, plus potentially $165 million in lottery funds. This by itself creates an immediate hole in the budget. When the fund hits $400 million, it transfers $100 million to General Revenue, but also triggers an additional $150 million revenue reduction, on top of the regularly scheduled $150 million cut. Therefore, the "cushion" it provides only accelerates the tax cut, on top of the fact that the "cushion" comes from existing revenue sources.
So the Reduction Fund hurts the budget in two ways: 1) by further diverting existing revenue: and, 2) by triggering larger tax cuts. Both the revenue being diverted and the additional tax cuts, as well as the regular scheduled tax cut all would have to be offset with new cuts to program spending every single year.
Confusing? You bet. But the bottom line is simple. HB 3300’s automatic cuts in the state personal income tax - compounded year after year - will put every single state program you can name at grave risk: Medicaid, CHIP, drug intervention programs, state health department initiatives (including COVID testing and vaccine distribution), public education, higher education and Promise Scholarships, road and bridge maintenance, fire and police department, state parks and recreation programs, clean air and water monitoring, agricultural supports, and many, many more.
Now the proposals are in the Senate for consideration.
The Senate Finance Committee has proposed yet another variation of this dangerous proposal. Like the Governor’s proposal, it tries to back-fill about half of the huge state budget hole left by phasing out the personal income by significantly raising the sales tax, including reinstating a sales tax on food.
If this variation passes in the Senate, then the two chambers of the legislature must work out the differences and pass the same bill in both. This takes time and the legislature is due to adjourn on April 10. But that doesn’t necessarily mean this bad idea dies. The legislature could then finish this nasty business by calling a special legislative session later in the summer to continue work on this dangerous effort.
Unless we speak out to our state Delegates and Senators, we could see the bankruptcy of our state and the programs that support so many West Virginia families during hard times. We could see other taxes – including the sales tax that hits middle-class and lower-income families the hardest – raised. We need to give our elected state legislators a dose of reality and responsibility.
Contact these Senators ASAP before a likely vote on Tuesday, April 6th!
Contact These Senators ASAP!
Capitol Phone: (304) 357-7855
Capitol Phone: (304) 357-7906
Capitol Phone: (304) 357-7902
Capitol Phone: (304) 357-7845
Capitol Phone: (304) 357-7808
Capitol Phone: (304) 357-7854
Capitol Phone: (304) 357-7831
Capitol Phone: (304) 357-7995
Capitol Phone: (304) 357-7807
Capitol Phone: (304) 357-7843
Capitol Phone: (304) 357-7990
Capitol Phone: (304) 357-7880
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