Survey says W.Va. ranks 13th in tax fairness

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Survey says W.Va. ranks 13th in tax fairness
By Phil Kabler, The Charleston Gazette-Mail

West Virginia ranks 13th in the U.S. in fairness of its state and local taxes, a WalletHub survey released Monday shows.

Ranking states based on how progressive their state and local tax rates are — with tax fairness defined as having higher taxes on wealthier households — West Virginia ranked 9th for its comparatively low property taxes, 36th for dependency on sales and excise taxes, and 26th for personal income and corporate taxes.

It also ranked 43rd for reliance on other taxes, a factor of having severance taxes on coal and natural gas production, and having comparatively high revenues from state lottery and gaming venues.

“While most Americans — liberals and conservatives — think a progressive tax system is most fair, virtually every state has regressive state and local tax structures, the WalletHub survey concluded. “Both “blue” states and “red” states are found to overtax the poor and undertax the rich, relative to what most Americans consider fair.”

Top states for state and local tax fairness, according to WalletHub, are Montana, Oregon, South Carolina and Delaware. Worst states for tax fairness are Washington, Georgia, Hawaii and Arkansas.

Among neighboring states, Virginia ranks 8th; Maryland, 10th; Kentucky, 34th; Pennsylvania, 35th; and Ohio, 40th.

Senate Finance Chairman Mike Hall, R-Putnam, co-chairman of the Legislature’s Joint Committee on Tax Reform, said the survey seems consistent with what the committee has learned while studying the state’s tax system throughout the summer.

“We have discovered that in certain areas, we really are pretty good in terms of fairness,” Hall said.

He said West Virginia has had the luxury many other states have lacked in being able to use tax revenues from natural resources and from gaming activities to offset other taxes to balance the budget.

However, he noted, “Both of those revenue sources are declining.”

Ted Boettner, executive director of the West Virginia Center on Budget and Policy, also said the WalletHub findings sound reasonable.

“West Virginia has a less regressive tax system than most states mainly because it has these other taxes to rely on,” he said.

Compared to other states, West Virginia has very low property taxes, and middle-of-the-pack sales tax and income tax rates, Boettner said.

Hall said it is difficult to rely on broad categories of taxes, suggesting for instance, that West Virginia’s rating for 9th lowest property taxes is skewed by very low rates on owner-occupied residential property.

Likewise, he said the state’s overall personal income tax rates may be about average nationally, but that may not mean much to senior citizens who have to pay taxes on Social Security income, unlike most states.

“This is a state full of seniors. We have people who left our state and moved to other states because of income taxes,” Hall said.

Hall said tax reform could also entail simplifying overly complicated tax regulations, and reviewing the more than 70 sales tax exemptions, exclusions and credits that have been added to the Tax Code over the years.

WalletHub, a personal finance social media website, is known nationally for its surveys ranking best to worst states and cities on a variety of economic and financial matters, as well as surveys on lighter topics such as “Best and Worst Cities for Valentine’s Day,” and “Best and Worst Cities for Sports Fans.”

In commentary accompanying the survey, one of the study’s authors, Linda Dadayan, senior policy analyst with the Rockefeller College of Public Affairs and Policy at the State University of New York at Albany, said elected officials often cut state and local taxes in hopes of spurring economic growth, but said history does not support that policy.

“In reality, state and local taxes do not represent a significant cost for firms,” she stated. “Business investment decisions are based not only on state and local taxes, but on other, more crucial factors such as geography, proximity to customers, the availability and quality of public services, the availability of qualified workforce, etc.”

Boettner said of the survey, “One credible thing to glean from the WalletHub survey is that everyone tends to agree that tax systems should be based on one’s ability to pay, which is how our personal income tax is structured in West Virginia.

“Unfortunately, the West Virginia Chamber of Commerce and many others now want to cut the personal income tax for wealthy West Virginians while perhaps increasing sales taxes that hit low and moderate income West Virginians the hardest,” he added. “This will make our tax system less fair and could damage our ability to invest in education and other critical public investments because sales taxes grow slower over time compared to income taxes.”