Three Plans for Tax Reform

One of the most popular topics this Legislative Session has been tax reform – specifically the reduction and/or elimination of the West Virginia Personal Income Tax. There are currently three proposals in this regard, one from Governor Justice,  one from the House, and the latest proposal from the Senate.

These proposals differ in many respects, but they are all aimed at cutting personal income tax – which currently makes up 43% of the State’s General Fund.

Here are the fundamentals of each plan:

Governor Justice’s Plan
The Governor proposes a Personal Income Tax rate cut on wages, retirement and unemployment income, but not on business or investment income. In order to offset the decreased revenues and contributions to the General Fund, the Governor proposes a tax shift by:

1. Raising the sales tax rate from 6% to 7.9%.
2. Broadening the sales tax base by expanding the sales tax to include business purchases, professional services such as legal, accounting, and advertising services, as well as health and fitness memberships and the sale of lottery tickets.
3. Increasing the tax on soda pop, cigarettes, beer, wine and liquor.
4. Implementing a luxury tax, raising severance and excise taxes.

The House of Delegates’ Plan – House Bill 3300
The House Plan aims to phase out personal income tax in 11 to 17 years – without revenue offsets by phasing in annual tax rate reductions. 

1. The reductions begin with an immediate $75 million reduction in personal income tax.
2. The House Plan calls for an additional $150 million reduction in personal income tax each year until personal income tax is phased out completely. 
3. HB 2200 also creates an Income Tax Reduction Fund – utilizing some existing and some new revenues, as well as 50% of all general fund surpluses.
4. When the Income Tax Reduction Fund exceeds $400 million, $100 million will be placed into the General Fund and personal income tax will be reduced by an additional $150 million.

The Senate’s Plan
The Senate recently unveiled its personal income tax reduction plan – which will amount to a strike and insert amendment for HB 3300. It is a hybrid of the Governor’s and House’s Plans.

1. Immediate tax reduction of more than 50% on earned income.
2. Offsets income tax rate reduction with a tax shift
   
   1. Raises the sales tax rate from 6% to 8.5%
   2. Broadens the sales tax base to include computer hardware and software, advertising, data processing, health and fitness memberships, legal, accounting, architectural and engineering services and a grocery tax of 2.5%.
   3. Increases tax on short term lodging.

The Tax Foundation has published a comprehensive comparison of the three tax reform proposals that you can access here.