The Front Porch: Five Taxes That Could Be Cut

Reforming the tax system is a major priority for the new GOP leadership of the West Virginia Legislature. Senate President Bill Cole has even floated the idea of eliminating the state income tax.

Like the cicadas, the issue seems to come up every few years, sometimes leading to changes, and sometimes not.

This week, The Front Porch gang debates whether West Virginia needs to change its tax system, and if so, who should benefit.

Rick Wilson of the American Friends Service Committee says that previous cuts to business taxes have not led to new jobs. He argues for investments in early childhood education and higher education over any tax cuts.

Laurie Lin of the Charleston Daily Mail says its too early to tell whether business tax cuts from a few years ago are working. As a former tax lawyer, she hopes lawmakers will try to make a simpler system.

Both Wilson and Lin agree that expanding the Earned Income Tax Credit would reward West Virginia’s low-income working families.

Credit Tax Foundation

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Here are some predictions for other proposed tax cuts:

1. Eliminating the state income tax – UNLIKELY. This is the biggest source of state revenues. Replacing it would require big hikes in sales and property taxes, which would be regressive and unpopular.

2. Increasing “sin” taxes – LIKELY. Despite the regressive nature of taxes on tobacco and alcohol, Wilson says they’re an easier target because they lead to better health outcomes

3. Decreasing severance taxes on coal – POSSIBLE. Never underestimate the power of the coal industry in West Virginia, especially amid a downturn. But cutting severance taxes would leave a big hole in state AND local government budgets.

4. Eliminating the tax on business inventories – POSSIBLE. This is one tax that most of our surrounding states do not have – the last business tax that sets West Virginia apart from its neighbors in a negative way. Wilson says the tax is not too burdensome considering the low real property taxes some businesses pay. But again, eliminating this tax will reduce revenues at both the state and county level, much of which goes for education.

5. Increasing the sales tax on services -POSSIBLE. Right now, West Virginians pay a sales tax on most tangible good, except for food, but they don’t pay sales tax on many services, from haircuts to legal advice. Taxing services would raise millions every year, but could prove unpopular with consumers and the lawyers and barbers who provide services.

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