Budget crisis takes center stage

The budget crisis has been at the forefront of our attention lately, as it should be. SB 335 is the tax bill which, as of this writing, is before the tax reform committee (check http://www.legis.state.wv.us for its status today). This bill would eliminate the personal and corporate income tax and the sales tax and replace them with a new 8 percent consumption tax on almost all goods and services. If enacted, this bill would give large tax breaks to the rich while dramatically increasing taxes on low and middle income families and small businesses.

Last Sunday, Tara Martinez from the W.Va. Center for Budget and Policy came to West Virginia Wesleyan College at the behest of Mountaineer Voices for Change, a newly formed action group in Buckhannon. MVFC works to inform the public about how they can get involved to make positive change in the community and the state, through education, advocacy and action.

The state of West Virginia must have a balanced budget by the end of the year. Indeed, according to our state constitution, it is our legislature’s primary duty. Sadly, our state budget has been cut repeatedly; for the last five years, the state budget has been cut by $500 million. This has led to substantial underfunding and staffing at various departments and agencies.  Looking at the long-term functionality of our budget requires a knowledge of historical data, as well as a vision for our state. Long-term planning is not something our state has been very good at. To compound the problem, since the replacement of many representatives in the last election, many of the new folks do not know the history of the budget-making process. They seem to be in a hurry to put a band-aid on the problems rather than developing a long-range plan.

The history of our budget has been to cut through important programs such as higher education funding, which has been in decline since 2008. Proposed cuts include the Promise scholarship, which was created to keep West Virginia students in West Virginia. At a time when we are trying to keep people from leaving, is forcing our young people to look elsewhere for an education and a job such a good idea? Severance taxes and corporate income taxes have fallen since mid-2014, which is what got us where we are: with a deficit of $558 million. We have given corporations over $500 million in tax breaks since 2007. These cuts have not resulted in the promised jobs supporters said they would create. Instead the state has about 6,000 fewer jobs in the private sector than it did before the corporate tax cuts.  Since 2014, our state’s budget gap has grown $75 million to $558 million. This has led to a lower credit rating for West Virginia, meaning we do not qualify for lower interest rates on bonds, loans and other financial instruments needed for development. Again, the long-range planning isn’t there.

Rather than shooting ourselves in the foot, we should be utilizing ideas that have worked for other states. Cutting income taxes while increasing sales taxes has not been shown to work. As just one shining example, if these plans are implemented, West Virginia will have the highest grocery tax in the country at 8 percent or 9 percent if you happen to live in one of the 27 cities that have a 1 percent sales tax. Who is hurt the most by a tax on food? You guessed it — the poor and middle class.

Ted Boettner of the W.Va. Center for Budget and Policy has written a policy brief which explains the problem in greater detail. His findings, below, highlight the fact that repealing personal and corporate income tax often has either no effect or a negative effect on growth and well-being:

* Of the five states that have repealed the income tax recently, only one is experiencing better job and income growth — despite underperforming most of its neighboring states.

* Most academic studies since 2000 find little-to-no impact on economic growth from reducing state personal income taxes.

* Over the last 10 years, states with the highest income tax rates have experienced faster economic growth. The nine states with the highest top income tax rates also have more Fortune 500 companies, higher median incomes, and a smaller share of residents without health insurance.

* Income tax is a more reliable source of revenue than the sales tax. Since 1990, income tax revenues grew by 249 percent in West Virginia while sales tax revenue only grew by 136 percent.

* The personal income tax is the only state tax based on the ability to pay. States that have a flat income tax tend to rely more heavily on low-and middle-income taxpayers for revenue, and less on the wealthy, than states with graduated income tax rates.

* Replacing West Virginia’s personal income tax with a higher sales tax would be a large tax cut for the top one percent of wage earners in West Virginia and a sizable tax increase for most families.

* A sales tax increase would increase taxes paid by its businesses, resulting in more people buying more products in neighboring states, and possibly lower the purchasing power of its low- and middle-income families.

* A shift from a graduated income tax in West Virginia to a flat income tax rate of 5 percent would raise taxes on 80 percent of families while giving the top 1 percent a tax cut of over $7,000.

* Instead of cutting the income tax, lawmakers should pursue efforts to limit itemized deductions, modernize tax brackets, and create a refundable Earned Income Tax Credit.

For more information on the issues and how to get involved, go to www.wvpolicy.org and www.protectwv.org. Once you know more, consider a call or letter to your senators about this bill, and others like it, that would reduce benefits to those who need them the most, without resulting in appreciable benefits.