Republican Senators Propose Replacing West Virginia’s Income Tax with A Higher New Sales Tax

Only nine states in the nation have no state income tax. However, there is considerable support in the West Virginia Senate to phase out our income tax completely by 2021 and replace lost revenue by raising the state’s sales tax to 8% from 6% and eliminating many sales tax exemptions. The effort in the Senate is being led by Sen. Robert Karnes (R-Upshur, 11) sponsor of SB 335. If the Bill in its present form is enacted, West Virginians would soon begin paying sales taxes on new items such as groceries, internet streaming services, haircuts, professional services, and more. The Bill is co-sponsored by eighteen other Republican Senators, including Panhandle Senators Craig Blair (R-Berkeley, 15) and Charles Trump (R-Morgan, 15).

Karnes told the Huntington Herald-Dispatch that West Virginia currently collects $1.9 billion from the income tax, which is 45% of the state’s $4.5 billion general revenue fund. The state collects approximately $1.2 billion from the sales tax. If all sales tax exemptions were eliminated, Karnes said the state would receive an additional $2 billion in revenue. Of course, there is no way all sales tax exemptions would be ended, particularly for things like medical services, day care services, and the like. The whole situation is fluid but the Senate Select Tax Reform Committee, of which Karnes is Chair, wants to move quickly. It rejected a motion to await the preparation of a “fiscal note” designed to predict the fiscal impact of the Bill.

Without a fiscal note, adopting a major change to the state’s tax structure seems reckless. Governor Justice has said that it would be “phenomenally risky” to make major changes to the state’s tax laws during a budget crisis. In fairness, the Select Committee will probably not take final action until there is a fiscal note. But there seems little point to working on a major change to the tax structure that may end up being a non-starter because it won’t raise more revenue. West Virginia is facing a $500 million budget deficit this fiscal year and perhaps a larger deficit next fiscal year. What we want is our Legislature to get busy working on a fair tax system that generates enough revenue to close the budget gap and promotes economic growth that will form the basis for stable future revenues.

There is reason to doubt that eliminating the state’s income tax will actually promote economic growth. The West Virginia Center on Budget and Policy reports that for the period 2005 to 2015 the nine states with the highest income tax had 5.6% GDP growth while the nine states with no income tax grew GDP only 3.2%. Perhaps there is no causal relationship here, but it makes one wonder and should cause the Republican sponsors of SB 335 some concern.

On the question of fairness, one thing is certain – enacting SB 335 will shift a greater tax burden onto West Virginia’s poor and working class and away from wealthier taxpayers. Low income taxpayers, including seniors dependent on social security, are not currently subject to high income tax rates and do not pay much in total income taxes. Higher income taxpayers pay considerably more income tax. This is the nature of a progressive tax. Contrast a sales tax, which taxes consumption. The sales tax doesn’t concern itself with how wealthy you are, only how much you spend and on what things.

Consider two hypothetical taxpayers. A taxpayer making $30,000 spends every dollar of his income supporting his family with shelter, food, clothing and other necessities. A taxpayer making $250,000 supports her family with relative ease and also consumes luxury goods, but still saves 20% of her income. Unless there are exemptions in the sales tax structure for necessities, under SB 335 our low-earning taxpayer will pay an additional 2% sales tax on 100% of his income, while the wealthier taxpayer will pay an additional 2% on only 80% of hers. In most cases, the total tax paid by the low income taxpayer will rise slightly, while the total tax paid by the wealthy taxpayer will drop considerably. This is because the additional 2% sales tax paid by the wealthy taxpayer on consumption is far less that the income tax she saves.

Sen. Patricia Rucker (R-Jefferson, 16) removed her name as a sponsor of SB 335. Perhaps she had second thoughts about the wisdom of the Bill. So should the rest of the Republican members of the Select Committee.

Print Friendly, PDF & Email