Senator: House Has 'Thrown A Wrench' in Tax Reform Plans

The Senate’s Select Committee on Tax Reform has voted once again to make changes to a revenue bill being floated back and forth between the House and Senate, and the committee chair says members of his caucus will not budge when it comes to their plan to eventually repeal the state’s personal income tax.

Tuesday marks day 9 of a special session of the Legislature where lawmakers are supposed to be working on a budget for the upcoming fiscal year that begins July 1, but work hasn’t started on that spending plan just yet, largely because the governor wants lawmakers to agree on a bill that increases revenue first.

The bill to do that, though, has taken countless forms in both the House and Senate, the latest of which was discussed in a Senate committee Monday, where it was changed once again. 

Delegates voted Friday in favor of their tax reform plan that would increase revenue by some $100 million next year. That bill focuses on broadening the sales tax by making new goods and services subject to the 6 percent rate. It would also exempt military retirement and some Social Security benefits from the personal income tax.

The House bill was sent to the Senate Monday where the Senate Select Committee on Tax Reform took action to make the House bill look like the Senate’s previously approved tax reform plan.

“The House threw a wrench into things a little bit. I don’t think [it’s] entirely responsibly because I think what they really were attempting to do is throw a wrench in the whole process,” Sen. Robert Karnes said. He chairs the Senate Select Committee on Tax Reform.

The committee’s plan creates three new income tax brackets and lowers the overall tax rates of each bracket by 15 percent, compared to current tax rates. It also sets economic benchmarks for the income tax’s eventual repeal.

It takes a note from the House’s bill and includes new income tax exemptions for military retirement and Social Security pay for people who make under $75,000 a year, but Karnes said in order to grant those exemptions the Senate chose to raise the sales tax from its current 6 percent to 7.25 percent.

“It’s something we’re certainly interested in, but you have to pay for this stuff and I’m not sure the House is really aware of that,” Karnes said. “The only way to pay for this stuff is to levy an additional tax somewhere else.”

The Tax Reform Committee’s bill includes other provisions as well, like the governor’s tiered severance tax for coal and would result in an estimated $300 to $330 million in additional revenue for the 2018 fiscal year.

Once the personal income tax reductions kick in in January of next year, though, the Senate plan starts to result in large budget deficits.

Karnes, much like other Republican members of the Senate, says those holes will be filled by the economic growth that will result from the changes in the tax code.

“Look, we know that what we’re doing doesn’t grow an economy. In fact, it has quite the opposite effect because West Virginia has the worst economy in the country,” Karnes said. “So, what we’re doing clearly is a bad idea and it’s time to try something different.”

Still, members of both parties in the House and Democrats in the Senate say the Senate plan is not the way to go. None of the Democratic members of the Tax Reform Committee voted for the changes Monday, and last week, Armstead said the House vote should send a clear message to the Senate to move past its income tax changes.

Karnes said Senate Republicans aren’t budging.

“If the House Republicans have gotten totally on board with the House Democrats and the Senate Democrats, then what you really have is a Democrat bill that the House Republicans have capitulated and signed on to,” he said.

Karnes said the House plan is purely a tax increase and Senate Republicans are not interested in raising taxes without some kind of reform.

Members of the House return to Charleston Tuesday afternoon. The Senate Finance Committee will likely meet Tuesday as well to discuss the tax reform bill further.