WV Center on Budget and Policy > Press > OpEds > Ted Boettner: Senate Tax Plan is Upward Distribution (Gazette)

Ted Boettner: Senate Tax Plan is Upward Distribution (Gazette)

June 4, 2017

Charleston Gazette-Mail – “It’s kind of hard to sell ‘trickle down,’ so the supple-side formula was the only way to get a tax policy that was really ‘trickle down’…Kemp-Roth (the supply-side tax bill) was always a Trojan horse to bring down the top rate.”

As some may remember, this quote is from David Stockman, President Reagan’s budget director. Stockman exposed that the 1981 income tax cuts were mostly about giving the rich a tax cut at a time when the Reagan administration was selling it as a tax cut for all.

Some West Virginia Senators are singing a similar tune as Reagan with their tax plan. While they say their plan is a tax cut for everyone, the facts say otherwise. According to a recent analysis by the Institute on Taxation and Economic Policy, the Senate tax plan would increase taxes for most West Virginia households while giving the top 1 percent an average tax break of over $2,000. This is largely because the income tax cuts in the plan mostly benefit the wealthy, at the same time, the sales tax increases fall hardest on low- and moderate-income residents.

On top of showering the wealthy with tax cuts paid for by working-class families, the Senate tax plan also punches large holes in our state budget that will most likely lead to more cuts to vital public services, such as schools, colleges, health care assistance, and public safety. While the tax plan is estimated to increase revenue by about $150 million for the upcoming budget year – which is still over $100 million short of closing the budget gap – it results in a net decrease in revenue of over $122 million two years from now and larger revenue reductions down the road when the income tax begins to fully phase-out.

The tax plan is predicated upon the false supply-side theory that money will trickle-down from above and boost our state’s economy. The fundamental flaw in this theory is that wealthy people have the luxury to save a lot of their money while most West Virginians are living paycheck to paycheck. When you boost the savings of the wealthy, a substantial portion of this money will go to financial centers out of the state, thus making no direct contribution to West Virginia’s economy. It also exacerbates income inequality, which is a root cause of many of our social problems.

What about businesses? According to the Council on State Taxation (COST), an industry funded tax policy group, West Virginia businesses paid $500 million in sales taxes compared to $200 million in income taxes in 2015. This means that if you increase sales taxes to cut income taxes, you are raising business taxes. So, the Senate tax plan that raises the sales tax and cuts the income tax by a similar amount is not going to help reduce business costs.

 Increasing the sales tax can also lower consumer demand as state residents are more inclined to shop online, across the border, or just spend less. This can result in fewer jobs in our retail and service-providing industries.

Shifting from an income to a sales tax has been tried in other states, often with disastrous results. What makes the state Senate tax plan unique is that no other state in recent memory has dealt with a massive budget gap ($500 million) by proposing large income tax cuts. Even Kansas and Oklahoma had sizable budget surpluses before they decided to dramatically cut and phase down their income taxes. There is nothing fiscally conservative about budget busting tax cuts. Just look at Kansas, which has had its credit downgraded three times, experienced nine rounds of budget cuts, and had to borrow money to pay its bills.

When the Legislature reconvenes next week, it is imperative that they produce a tax plan that works for all West Virginians, not just the few at the top. Over the course of the last five years, our state has experienced over a half a billion dollars in cuts to services and programs that are beginning to crack the foundation of our state’s economy. The cuts have led to skyrocketing tuition at our public colleges, low pay for our teachers and other public employees, and a transportation system that is crumbling.

Now is the time to adopt a simple tax plan that ensures we all pay our fair share to make the investments we need to grow our economy. We owe it to our children to provide them with a strong future. Their legacy is our responsibility. Let’s not throw it away because we are determined to give handouts to the rich.

Find out more about the Simple Plan for filling the budget hole at wvpolicy.org.