Deadline Looming, Lawmakers Still Searching for Tax Reform Compromise

Gov. Jim Justice sat the head of a long table in his conference room Monday afternoon, surrounded by reporters and members of his staff. It’s the same room that nearly three months ago Justice declared his budget war room, inviting members of the Legislature to join him and his staff each morning to hammer out a deal.

That deal still hasn’t been reached, with less than three weeks until a potential government shutdown. Justice invited reporters into that conference room once again to explain that it was time for lawmakers to take action.

“If we don’t pass this what I fear is just this, that there is going to be some level of carnage. If you don’t pass this, you know, there has to be some level of real hurt.”

“This” is Justice’s revenue bill, his tax reform plan, his route to balancing the budget in 2018. The governor tweaked his proposal once again over the weekend, presenting it to House Speaker Tim Armstead and Senate President Mitch Carmichael Saturday morning, and members of the Democratic caucus in both chambers Monday afternoon.

The proposal largely remains the same as the plan the governor has been pushing since the end of the regular legislative session in April.

It would increase the consume sales tax to 6.35 percent and broaden the base, as they like to say in the House of Delegates. That means getting rid of tax exemptions — imposing the sales tax on things like cell phones, gym memberships, and a number of purchases businesses make in the transportation and communications fields.

Credit Perry Bennett / West Virginia Legislative Photography

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West Virginia Legislative Photography

The tweaked plan still includes changes to the personal income tax, notably to reduce the rate of taxation by 7 percent on Jan. 1, 2018. Later reductions would kick in when the state meets some set of economic triggers.

But it’s the personal income tax reform proposal that’s caused the most tension between the House, Senate and Governor’s Office. Justice said he wants to ease some of that tension by getting rid of any income tax reduction for West Virginians who make more than $300,000 a year.

“I have stood rock solid, steadfast in my belief wholeheartedly, and that is the wealthy need to pull the rope. They need to pull the rope,” Justice said.

The governor has also embraced some of the House’s previous position on the tax reform plan, including exemptions for military retirement and some Social Security pay, and increasing the standard deduction on personal income taxes from $2,000 to $2,500 for households that make less than $50,000 a year.

But while the plan has been altered slightly, it hasn’t changed enough for some in the House, and Speaker Tim Armstead said the closer lawmakers get to their June 30 deadline, the less support there is in his caucus for the personal income tax changes.

“I think he felt perhaps that that would bring people on board and it may have some, I’m not certain, I don’t know the numbers within the Democratic caucus,” he said. “I don’t think it moved the needle in our caucus.”

During the press conference, Justice urged lawmakers to take action on the new plan the same day, but his plea came just as members of the Senate gaveled out for the day.

Senate President Mitch Carmichael said, much like the governor, he wants to see a resolution as quickly as possible, but it’s up to the House to come up with a final plan.

“I think and it should be widely known that the House has trouble generating 51 votes for any plan,” Carmichael said.

The House has done more than cobble together 51 votes in favor of a revenue plan during this special legislative session, though.

Three weeks ago, the chamber voted 74 to 17 for a proposal negotiated between Democratic and Republican members. That plan included the veterans and Social Security tax exemptions and broadened the sales tax base, but was called a tax increase by Senate Republicans who want tax reform.

Senate Republicans are defining that reform by changes to the personal income tax, even though Armstead said that’s “the closest you’re going to get to tax reform in the House.”

Credit Perry Bennett / West Virginia Legislative Photography

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West Virginia Legislative Photography

But the governor is still trying to sway Armstead’s members, spending more than an hour with Republican Delegates in a closed-door session Monday afternoon.

Before that meeting, Justice said he is still willing to compromise, but only on things that won’t hurt West Virginians.

“If what we do is allow something to pass which hurts someone to gain politically, that is totally terrible,” Justice said, “and others are capable of doing something that they know is going to hurt somebody in order to gain politically, it’s terrible. There’s no place for that.”

Armstead said he still is not in favor of the tax reform plan based on changing the personal income tax, but if enough members of his chamber—on both sides of aisle—begin to support it, he wouldn’t prevent it from being put to a vote.

Lawmakers negotiating a compromised version of that tax reform plan will continue their work at the Capitol Tuesday.