On Saturday afternoon of day 46 of the West Virginia legislative session, the Senate Finance committee unveiled and passed their second attempt at a tax cut without discussion or questions and then suspended rules to pass it out of the chamber. The legislation, HB 2526, looks very much like the plan they passed earlier this session (SB 424). Both versions overwhelmingly benefit the wealthy, contain a workaround for the tax cuts rejected by voters via Amendment 2, and contain automatic triggering mechanisms that would ultimately eliminate the state’s personal income tax at the cost of needed budget investments.
In an attempt at compromise with the House, the Senate plan increases the personal income tax cuts across all brackets from 15 percent to 21.25 percent. This still overwhelmingly benefits the wealthy, with the top 20 percent of households receiving nearly two out of every three dollars in tax cuts. While the average household would see a tax cut of about $298 annually, or about $11 per biweekly pay period, the tax benefit varies widely by income. The bottom 20 percent of households would receive on average about $21 per year, while the top 1 percent of households would get an average annual tax cut of nearly 500 times as much, at $10,016 per year.
The legislation also provides rebates for the voter-rejected personal property tax cuts from Amendment 2. Taxpayers would be able to file at income tax time for a rebate of 100 percent of their local taxes paid on personal motor vehicles and businesses with less than $1 million in aggregate appraised value personal property would be able to file for rebates of 50 percent of taxes paid toward the business personal property tax categories (machinery and equipment, inventory, leasehold investments, computer equipment, and furniture and fixtures). The rebate proposal would likely involve a significant amount of new intergovernmental coordination and administrative costs. While personal property taxes are paid to county governments, the state tax department would be issuing the rebates, creating some concerns around compliance for people who own personal property in multiple counties.
HB 2526 contains concerning automatic triggers that would ultimately eliminate the personal income tax altogether, and with it over $2 billion of annual general revenue. While SB 424 tied future personal income tax reductions to the sales tax, this legislation ties it to all sources of general revenue except for the severance tax. This means that all sources of revenue growth above inflation would be diverted to personal income tax cuts rather than future budget needs. And like prior triggers, it only requires hitting the trigger one time to create a permanent tax cut, which is not a fiscally responsible or sustainable approach. We’ve highlighted at length why triggering mechanisms are fiscally irresponsible and hamstring future legislators by setting tax cuts automatically into motion regardless of future budget needs.
In this case, the triggering mechanism will be enormously difficult to implement and to budget around. Per the bill, at the end of each fiscal year, the Revenue Secretary is to calculate whether revenue collections are higher than inflation-adjusted base year (FY 2019) revenues minus the severance tax. If they are, presumably by even one dollar, an additional income tax cut is triggered. This could lead to income tax rates changing by fairly small amounts nearly annually. This calculation would happen after the legislature has already passed their budget for the fiscal year they’d be changing the rates for, creating serious potential issues for responsible budgeting given the moving revenue target.
Finally, HB 2526 violates the Senate’s own commitment not to pass tax cuts costing more than $600 million in order to meet spending needs. The governor’s estimate is that the legislation could cost about $750 million once fully phased in. Unlike the Senate, we’ve concluded that there is no room for tax cuts at all once accounting for upcoming statutory spending based on bills already passed by the legislature and the temporary nature of current revenue surpluses, particularly temporary severance tax revenues.
Overall this legislation is certain to harm low- and middle-income families by reducing the state’s ability to invest in current programs and services or to make new needed investments. The Senate-passed budget for FY 2024 is already $777 million lower than FY 2019 after adjusting for inflation, meaning the legislature is already cutting the budget in anticipation of tax cuts that overwhelmingly benefit the wealthy.
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