WV tax committee hears all sides, must weigh options
By Linda Harris, Legal Reporter, The State Journal
West Virginia’s Joint Select Committee on Tax Reform heard from special interests and the public Oct. 20. Those who spoke want to make sure any changes the Legislature ultimately makes grow revenues without hurting the constituencies and causes they hold dear.
But those causes and constituencies run the gamut from children, young adults, seniors, low- and moderate-income families, the working poor and the middle class to maintaining funding for schools, higher education, roads, bridges, infrastructure, big business, small business, the coal industry, teachers, land owners, farmers, foresters, non-smokers and cannabis enthusiasts.
And their suggestions for fixing the state’s tax laws are just as varied: Some want to create an earned income tax credit at the state level that would help low-income workers or eliminate taxes on machinery and equipment to spur growth. Others lobbied for an increase in the tax on tobacco products.
Sen. Mike Hall, R-Putnam and the committee co-chairman, said simply: there’s no pleasing everybody.
“As soon as you come out with something that would probably be good, you cut something and affect somebody,” Hall said. “Then the emphasis would be on who it’s hurting, not who it’s helping.
“Someone will come in and argue against it, but that doesn’t mean you don’t do it. You can’t make everybody happy.”
Hall said lawmakers need to figure out what needs to change to make the state stronger, and then figure out, “If we can’t get there immediately, how do we get there?”
The committee, formed earlier this year, is tasked with figuring out what, if anything, about the Mountain State’s tax structure needs to be changed to encourage investment, expand the economy and create jobs. Over the past six months its members heard from government analysts, academics and economists, as well as municipal and county leaders. This week, the committee heard from 33 individuals representing groups and organizations concerned that reform, coupled with a projected $250 million budget deficit in 2016, could bring unintended consequences.
Dale Lee, president of the West Virginia Education Association, told committee members the keys to building a stronger West Virginia are investments in children and their health, along with teachers, workers and infrastructure.
“It’s also important not to increase the burden on families,” Lee said. “(Our) upside-down tax structure already asks them to pay a greater percentage of their hard-earned income to taxes.”
Lawmakers, he said, “face the difficult task of balancing revenue with needs.”
“Do not divorce the state budget from your deliberations on tax reforms,” he said. “Look for alternative sources of revenue ... (increasing) the tax on cigarettes and other tobacco products is a no-brainer. It would boost revenue and also improve the health of citizens.”
Charles Wilfong, president of the West Virginia Farm Bureau, said his members need a break.
“It’s getting even harder for those in agriculture to survive the regulatory environment we’re in,” he said, telling the committee farmers “could not survive” without the farm use valuation process.
“We’re already under tremendous pressure on the regulatory side,” he said, pointing out margins in agriculture are small and an excess acreage tax “would be devastating, especially to our full-time family farmers.”
“I hope the Legislature ... will be willing to make some bold moves and really decrease the size of government,” he added. “I believe that is the answer in the end. We’ve got more government than we can afford. Decrease the size of government and rely on broad-based taxes rather than ones that are destructive to specific entities, like agriculture.”
Stephen Smith, executive director of the West Virginia Healthy Kids & Family Coalition, said there’s “almost universal support for an earned income tax credit.” He also said lawmakers must find a way to “protect our investments in the future” by investing in roads and infrastructure now.
“In a state where we have the lowest workforce participation in the country, the last thing anybody should be doing is keeping people from working,” he said, adding an EITC would “incentivize work.”
“And the tobacco tax ... we even hear it from smokers themselves; they know the trouble the state is in. It’s worth it,” he said, though also pointing out lawmakers “must be careful with whatever tax reforms you do, build in a mechanism for accountability so you know if it is working.”
Jennifer Thacker of the West Virginia Alliance for Sustainable Families, contends an EITC is “important for working families struggling to pay for basics like food and gas.”
“It would provide tax reform for those who need it the most — West Virginia’s vulnerable working families,” Thacker said.
Gary Zuckett, executive director of the West Virginia Citizens Action Group, said an EITC would “provide relief to those need it most, working families” who, in turn, would have more money to spend on consumer goods. The flip side, he said, is that it could take as much as $47 million out of state coffers.
Parween Mascari of the West Virginia Chamber of Commerce urged the committee to “take a look at our entire tax structure.”
“If you want to have a growing economy, let’s put our miners back to work,” she said, adding, “We cannot tax our way to prosperity. We’re asking you to create a climate that encourages growth, then figuring out where the revenue comes from becomes much less of a problem.”
Mascari said chamber members believe it’s time to revisit West Virginia’s personal property taxes as they apply to inventory, machinery and equipment.
Eliminating it “would make us more attractive for growth and expansion, especially compared to Pennsylvania and Ohio where that tax does not exist,” she said, adding it’s “not just a manufacturing issue, all West Virginia businesses pay this tax. Every year by July 1 they must go through and list all their furniture, fixtures and equipment.”
As it is now, she said, West Virginia’s tax structure “hurts business, discourages expansion and job creation and puts us at a disadvantage,” causing some businesses to “move ... as little as five miles across the border.”
Rebecca McPhail, president of the West Virginia Manufacturers Association, told the committee a “balanced and thoughtful approach is necessary when it comes to tax reform,” especially with a $250 million shortfall on the horizon.
“West Virginia is one of only 10 states that imposes a tax on business inventory,” McPhail said. “Property taxes on inventory affect all sectors of business.”
McPhail told the committee West Virginia “must become more attractive to employers,” with a greater emphasis on “developing a stronger work force, education and providing employers with a skilled workforce (they need) to grow the manufacturing environment.”
Hall said the public hearing represented a “pretty good cross-section of opinion.”
“All the ideas sound good, but when you layer them into West Virginia’s tax situation there may not be as much bang for the buck as concept being talked about,” he said. “But it’s all definitely worth talking about it.”
Some, like eliminating taxes on machinery, equipment and inventory, would hit counties hard.
“Those are property taxes and those don’t come into the general revenue of the state directly,” he said. “(It would) affect local revenue, bonds ... it’s just not a simple tax to get rid of. It’s nice to talk about it, but we’d have to figure it out. ... Getting rid of that tax, which a lot of people say they want to do, is not as simple as cutting it out.”
Likewise, he said the $47 million price tag attached to EITC might be too much for the Legislature to stomach now, with a potentially multi-million dollar deficit on the horizon. He recalled how in the 1980s legislators cut taxes “and the state ended up in trouble.”
“We’re not going down that road again,” Hall said. “We didn’t cut the severance tax, but it’s still a problem. I think the administration, the Legislature ... we’re all holding our breath to see what happens over the next four to six months.
“All the fixes we’re seeing now are conditioned on healthier severance tax receipts and that may or may not happen. If it keeps going down, there are definitely going to be” ramifications.
He said a state-based EITC “might not give that great of a bump, but it’s a big cost to the state. And we’ve also got to address the fact, and it’s not a fatal flaw but it’s a problem, that it’s been reported to us up to a quarter of the federal returns claiming EITC are fraudulent.”
Nor does he see much support for decriminalizing marijuana or even legalizing it for medical needs, though one support at the public hearing suggested legalizing cannabis could bring in $400 million.
All lawmakers, he said, “should have a pretty good working knowledge of how finances work, but that’s not an easy thing to do.”
“I think these eight or 10 meetings we’ve had, with all the people coming in and all the handouts we’ve been given, should provide a real resource to people,” he said. “If you go through what’s gone on at the meetings, if you download the materials and go through them...suddenly you (understand) the reality of the situation.”