House passes personal income tax phase-out while Justice plan stalls
CHARLESTON — The West Virginia House of Delegates sent the state Senate its version of a personal income tax phase-out Monday in a mostly party-line vote, while the bills introduced by Gov. Jim Justice to do one big cut remain stuck in committees.
House Bill 3300, relating to reducing personal income tax rates generally, passed in a 77-23 vote Monday. Delegates Mick Bates, D-Raleigh, and Ed Evans, D-McDowell, voted with the Republican majority, while delegates Roger Conley, R-Wood, and George Miller, R-Berkeley, voted against the bill along with most of the Democratic caucus.
The bill also creates an Income Tax Reduction Fund from a portion of various sources of tax revenue and revenue collections. Once the ITR Fund reaches $400 million, $100 million gets transferred to the state’s general revenue fund, while the remaining $300 million acts as a buffer for economic downturns.
“There are no tax increases or any tax shifting of any kind in the bill before you,” said House Finance Committee Chairman Eric Householder, R-Berkeley, when urging members to vote for the bill. “It does give tax relief if you have any source of income. So, our small businesses, our pass-through entities, our farmers and individuals out here today throughout the state.”
The Department of Revenue estimates the state will bring in $2.041 billion from the personal income tax in the next fiscal year starting July 1, with personal income tax revenue making up approximately 43 percent of collections to the general revenue fund.
An updated fiscal note submitted Friday by the Legislature’s Division of Regulatory and Fiscal Affairs estimated that HB 2022 would reduce personal income tax collections for calendar year 2022 by $75 million. Assuming that personal income tax annual growth remains constant, the personal income tax could be phased out between 2034 and 2039, Director Peter Shirley said.
“The Tax Department projects average annual growth in personal income tax (PIT) receipts from 2018 to 2026 to be 3 percent per year,” Shirley wrote. “If growth were to average 3 percent per year, the PIT would be eliminated around FY 2039, a year later than under a growth of 2 percent per year. Taking into account the Income Tax Reduction Fund and our anticipated $69.4 million per year growth, the PIT would be eliminated in FY 2034.”
An additional fiscal note submitted by the West Virginia Lottery on Friday stated skimming from its special revenue accounts, such as taking revenue from KenoGo games, limited video lottery games and fees from expansion of limited video lottery terminals, could hurt bond repayments, services for seniors and tourism and reduce funding to the Promise Scholarship.
House Minority Leader Doug Skaff, D-Kanawha, said HB 3300 creates too much uncertainty as to whether future economic growth can offset the cuts required by the bill. Skaff also raised concerns about the effect of federal coronavirus stimulus money to both individuals and state and local governments creating a false sense of security to move forward with tax reform.
“We have artificial money coming into our economy this year from the federal stimulus money that we can’t rely on every year, but we’re going to base the next 12 years on this past year’s success on artificial money coming into our economy. That makes no sense,” Skaff said. “I commend a plan that does not raise taxes. I’m all for our … doing away with the personal income tax, but not at the risk of taking money from other programs.”
HB 3300 was also amended Monday by Householder, moving the date the tax cut would become effective from January 2022 to July 2022 to match the beginning of fiscal year 2023. The Householder amendment also repeals the state’s marriage penalty. Unsuccessful amendments from Democratic lawmakers would have allowed for the future taxation of recreational cannabis and limited the tax cut to one year.
The House Finance Committee held a virtual public hearing Thursday on HB 3300. The West Virginia Chamber of Commerce expressed support for the House plan, in contrast to their opposition to Justice’s personal income tax cut plan. Chamber President Steve Roberts said the membership of the chamber believes HB 3300 to be a better tax reduction option.
“We have asked them their views on this bill, and they are very positive about the potential impact that this bill could have on our economy and for our state’s future,” Roberts said. “This bill applies to all income taxpayers. It does not pick winners and losers. The rates of reduction in income tax are important rates of reduction. They are significant and they are meaningful.”
Opponents of the bill believe it will cause cuts to government programs to keep up with the annual cuts to the personal income tax. They also believe that taxes will still have to be increased and likely shifted to middle class and low-income residents.
“House Bill 3300 is a bill that is neither modest nor a responsible alternative to the Governor’s plan,” said Kelly Allen, executive director of the left-leaning West Virginia Center on Budget and Policy. “This legislation takes away power from future legislatures to decide if economic and revenue conditions are right to cut taxes. There are no triggers, no breaks. It just forces legislators into further and further austerity.”
House Bill 2027 and Senate Bill 600, the Governor’s tax reform plan, both remain lodged in their respective committees. Justice spent last week holding town halls in Morgantown, Beckley, and the Eastern Panhandle to gain public support for the plan, which would cut personal income tax rates by 60 percent starting in July for fiscal year 2022 and provide a tax rebate for residents earning less than $35,000 per year.
Justice’s entire tax proposal and tax rebate would decrease state tax revenue by $1.088 billion. Justice proposed $902.6 million in proposed tax increases to pay for the personal income tax cut. Business groups and tax reform organizations oppose the Governor’s plan because it does not cut personal income tax rates used by small businesses and sole proprietorships, removes tax exemptions on professional services, and raises excise taxes.