WV Center on Budget and Policy > Blog > 2015 & 2016 Tax Reform > Compromise Tax Bill Falls Onto Working Families, Makes Budget Crisis Worse

Compromise Tax Bill Falls Onto Working Families, Makes Budget Crisis Worse

On the last night of the 2017 Legislative Session, the Senate and the Governor appeared to have worked on a tax plan compromise bill that would make sweeping changes to the state’s tax system that would exacerbate our state’s budget crisis and shift the tax load onto working families to make room for tax breaks for the wealthy. This included severance and income tax reductions, a sales tax increase with base broadening, a temporary Commercial Activities Tax (CAT) on gross receipts and a high-income surcharge tax, and increases in motor fuel taxes and Division of Motor Vehicle fees dedicated to the state’s roads.  Altogether, these changes would lower General Revenue Fund collections by an estimated $115 million and increase State Road Fund revenues by nearly $118 million in the first year of full implementation.

The table below provides an overview of the tax changes included in the compromise tax plan that were offered as an amendment to Senate Bill 484. While the plan raises revenues by increasing the sales tax and enacting a temporary tax on businesses (CAT) and high-income earners, the deep cuts to the personal income and the severance tax lead to a sharp decline in revenues for the upcoming fiscal year of 2018. The tax plan lowers revenue collections in future years even further since both the CAT and high-income tax expire by FY 2020, and the personal income tax is phased out over the coming decades.

The changes to the State Road Fund include an 8-cent increase in the motor fuel tax and increases in various DMV fees. This totals approximately $118 million in additional revenue for FY 2018 or about $60 million less than the Governor proposed in his FY 2018 budget.

On top of the $115 million in lost revenues that punch a bigger hole in the state budget, the proposed tax changes would on average increase taxes on 80 percent of West Virginia households making below $84,000, while lowering them on the 20 percent of West Virginians that make more than $84,000. Those making on average $11,000 would see their annual taxes rise by $121 or 1.1 percent of their income, while those making on average $778,000 (top 1 percent) would see an average tax cut of $3,713. This means that the compromise tax plan – excluding severance tax changes – raises taxes on most West Virginians to give large tax breaks to those that need them the least.

As noted in previous tax proposals, these changes will not only exacerbate income inequality and make it harder for low- and middle-income families to make ends meet, but they will lead to large future budget shortfalls that will damage our state’s ability to invest in the building blocks of our state’s economy.

Cutting income and severance taxes – while phasing out the income tax – is not going to pave a strong future for the state. Instead of moving in this direction, lawmakers need to work together to ensure tax reform is addressing the state’s looming budget crisis together not making it worse.

 

One Response to “Compromise Tax Bill Falls Onto Working Families, Makes Budget Crisis Worse”

  1. Sue Kelley says:

    This really does make me feel ill. The cruelty of the “compromise” combined with an apparent lack of interest in helping the state dig out of its hole would be shocking had I not grown to know the people responsible. Thank you, Ted, for keeping us informed. You provide a very important service.

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