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Slight rise in sales tax, slower rollout of income tax plan in latest proposal

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Slight rise in sales tax, slower rollout of income tax plan in latest proposal
By Brad McElhinny, WV Metronews

CHARLESTON, W.Va. — The revenue proposal that’s gaining traction as a likely fix for the state budget offers a 6.35 percent sales tax and a slower rollout of personal income tax reductions.

The personal income tax reductions, which have been favored by Republicans in the Senate but eyed with skepticism by other lawmakers, would include an average 7 percent reduction the first year, and triggered reductions of a 7 percent average the second year and 6 percent the third year.

Those are the basics of a plan pitched Tuesday by Gov. Jim Justice to legislative leaders. The details come from a variety of leaders who were involved with the talks.

Justice expressed optimism after nearly three hours of discussions that he’d finally landed on a proposal that could earn broad support. Lawmakers said they would need to loop in their caucuses but also seemed to think there was room for agreement with the latest plan.

The full Legislature is set to return this coming Monday. The new fiscal year begins July 1, so Governor Justice would like to have his proposed $4.35 billion budget in place soon.

There are other key details of the latest proposal too.

One factor would accomplish the desire of Republicans in the House of Delegates to broaden the economic sectors subject to consumer sales tax to include telecommunications, digital goods, electronic data processing, health and fitness services, primary opinion research, all contracting services (this is a big one, 92-million) and direct use communications, are among the big ones.

The removal of sales tax exemptions to all those areas, plus the general increase of the sales tax to 6.35 percent is estimated to bring in another $286 million the first year.

The budget gap, most recently, has been estimated to be about $250 million so the changes would resolve that — although also lowering the personal income tax would trim significant revenue for the state.

There are also additional changes to the personal income tax.

The personal income tax on Social Security would be phased out over two years for those making under $50,000. The personal income tax would be eliminated for veterans’ pensions.  A personal exemption would be increased to $2,500 for those making under $50,000.

One of Governor Justice’s major goals has been a large-scale plan to build and better maintain West Virginia’s highways system.

There are aspects of the budget proposal that deal with that, too, although they’ll likely be presented in a separate bill.

A commercial activities tax of .015 percent would support highways funding. To simplify, if a company’s gross income is $1 million, the tax would be $150.

There is also an anticipated change in how the wholesale gas tax is calculated. The floor of the taxable amount would not go lower than $3.04 a gallon — meaning that the tax would remain at that level even if the wholesale price of gas goes lower. That’s expected to bring in $45 million the first year.

The sales tax on buying a car would go to 6 percent, bringing in an estimated $40 million.

And fees at the Division of Motor Vehicles would go up, bringing in $41 million the first year.

All that is expected to raise another $137 million for roads the first year and $143 the second year.

The potential compromise includes grounds for agreement on a classroom teacher pay raise and a Save Our State fund sought by the governor.

Both Democratic and Republican lawmakers involved with the discussions have allowed that they believe the governor has made a good-faith effort to seek compromise in the latest discussions.

Senate President Mitch Carmichael, speaking today on MetroNews’ “Talkline,” said his caucus would prefer a faster rollout of the income tax reductions.

“It’s certainly not where we wanted to be,” Carmichael said. “We passed much more aggressive tax reform and much more aggressive reduction in the personal income tax. Is this something we can live with? What I’ll say certainly is we have the greater interest of the state at heart and want to absolutely avoid disruption of government services.”

Justice and legislative leaders met for many hours over two days last week, with the governor dividing the various caucuses into separate rooms and then walking from room-to-room for talks.

Over the long holiday weekend, Justice spent a lot of time in the car, thinking about the discussions and considering how a plan could come together.

“I worked all weekend to try to come up with a plan that was really a plan of everybody’s, and I think we’re really close,” Justice said late Tuesday afternoon.

In a brief interview after Tuesday afternoon’s talks, Justice continued, “What we’ve tried to do is mesh together ideas from all of us, and I absolutely believe without a doubt we’re making progress, making real progress.”

The governor’s hope is that if there’s consensus leading into Monday’s resumption of the special session then lawmakers might be able to vote and finalize a budget for the coming fiscal year.

“It would be my goal that we could very quickly get to a budget that can be passed, to where we can get everybody out of here and get us all off the taxpayer’s dime. That’s what we need to do,” Justice said.

Senate Republicans have advocated a plan to raise the consumer sales tax — most recently to 7.25 percent — while starting a plan to reduce the personal income tax six months later. The result, they say, would raise revenue to balance the coming budget while also laying the groundwork for increased economic activity.

House Republicans, House Democrats and Senate Democrats all have cast doubt on that notion, favoring plans that would forego the broadest aspects of the income tax reduction while opting for a smaller sales tax increase, if any at all.

The plans have been at odds within the Legislature as the House passed its proposal with a bipartisan 74-17 vote on May 16

The Senate passed its plan May 24 on a 18-13 vote that included all Republicans except for Senator Randy Smith voting in favor and all Democrats against. The House then voted 85-0 to refuse to concur.

The matter appeared to be moving toward conference committee, but Justice said he wanted the time and influence to be able to sort out the matter more informally over a couple of weeks.

The governor earlier vetoed a budget that would have used about $90 million from the state Rainy Day fund and then cut millions from higher education and healthcare spending.