‘We can afford it’: West Virginia Democrats announce plan to cut sales tax
CHARLESTON — Talk of phasing out West Virginia’s personal income tax appears to be dead this year, but Democratic lawmakers in the Legislature believe cutting the consumer sales and use tax is the right thing to do.
Democratic members of the state Senate and House of Delegates held a press conference Tuesday morning announcing a plan to immediately reduce the consumer sales and use tax from 6 percent to 4.75 percent, a 1.25 percent reduction. Bills are expected to be introduced in the House and the Senate as soon as this week.
The 1.25 percent sales tax cut would cost $312.5 million, nearly the same amount as the $315 million in matching funds set aside for the Department of Economic Development to use when North Carolina-based Nucor starts construction of a new steel mill in Mason County.
The funds would come out of the state’s budget revenue surplus, sitting at nearly $400 million according to fiscal year-to-date tax collections reported by the Department of Revenue.
Once the fiscal year ends on June 30, if the state Rainy Day Fund hits $1 billion, that would trigger another 0.25 percent cut in the sales tax at a cost of $62.5 million, with those funds coming out of the Rainy Day Fund. Going forward, the sales tax would be reduced by 0.25 percent each fiscal year any time the Rainy Day Fund hits $1 billion, possibly phasing out the tax altogether.
By law, half of every general revenue surplus at the end of a fiscal year must go into the Rainy Day Fund. The Rainy Day Fund has $1.026 billion between Revenue Shortfall Funds A and B as of the end of December, the first six months of the current fiscal year.
Senate Minority Leader Stephen Baldwin, D-Greenbrier, believes the sales tax cut is the responsible way to provide a tax break to all West Virginians while also ensuring a healthy Rainy Day Fund and protecting the state’s positive bond ratings.
“It’s a tax cut for everybody,” Baldwin said. “This helps every single West Virginian. This helps every single West Virginia business. We can afford it right now. Times are good right now in West Virginia. And we can build on this if the economy continues to be strong. We can also keep our bond ratings high at exactly the same time. This allows us in a very simple way to do all three of those things in one fell swoop.”
According to an analysis of the Democratic minority tax plan, a family of three earning $30,000 in annual household income would see $122 in savings if the 1.25 percent reduction occurs, while a family of three earning $70,000 in annual household income could see as much as $201 in savings.
“Families can use that money for their essential needs and push back on things that we don’t have control over, like inflation, like high gas prices,” said Sen. Richard Lindsay, D-Kanawha. “We believe that this is just a great policy for West Virginia and we believe it is a great policy for West Virginia families.”
Democrats also believe the sales tax reduction would make West Virginia’s border counties more competitive with neighboring states, making the state’s sales tax lower than Ohio, Pennsylvania, Maryland, Virginia, and Kentucky.
“I live in the Northern Panhandle. In 15 minutes we can be in three different states,” said Delegate Lisa Zukoff, D-Marshall. “This will make West Virginia’s sales tax the lowest to our Ohio neighbors and our Pennsylvania neighbors, which will encourage folks to come into our state to participate in our economy and help us further.”
According to the Department of Revenue, sales tax collections for December were $154 million, 15 percent above the $133.9 million estimate for the month, resulting in a $20.1 million surplus for the month and year-to-date surplus of $65.4 million.
Last year, Republican lawmakers in the House and Senate considered two proposals for phasing out the personal income tax. Those efforts fizzled after Gov. Jim Justice and Senate Republicans were unable to come to an agreement with House Republicans over the best way to phase out that tax.
Congress passed President Joe Biden’s $1.9 trillion American Rescue Plan Act in March, which includes provisions prohibiting states from directly or indirectly offsetting reductions in net tax revenue with federal COVID-19 dollars. ARPA requires states to report to the U.S. Treasury Department any reductions in tax revenue and empower the Treasury to recoup any funds if it believes the funds were used to offset tax cuts.
West Virginia Attorney General Patrick Morrisey led a 13-state coalition in Alabama federal court for a permanent injunction against the ARPA tax cut prohibition, which was granted in November. The Treasury Department filed documents last week to appeal the decision. Similar cases filed in Kentucky and Tennessee and one filed by Ohio also saw the ARPA tax cut prohibition blocked.
State Democratic legislative leaders don’t believe their sales tax reduction plan runs afoul of the ARPA tax cut prohibition since the source of funds will come from surplus tax revenue the first year and the Rainy Day Fund in future years.
“I don’t think it is a concern because of the revenue source we’re looking at here,” Baldwin said.
Steven Allen Adams can be reached at email@example.com.