Notes from the bad idea factory

First off, if you happen to be around a screen on Wednesday, March 15 (the Ides of March!), check out a Facebook Live webinar thingie my co-worker Lida Shepherd and I are doing about SNAP (formerly food stamp) benefits, what they mean to WV, and what some people are trying to do to them. It's a 1:15. More info here.

Next up, this op-ed of mine ran in today's Charleston Gazette-Mail about the bad idea of replacing WV's personal income tax with a regressive consumption tax:

One of my favorite state legislators, who shall remain nameless except to say he’s Mike Pushkin, likes to call a certain place with a dome “the bad-idea factory.”

While I would never even dream of saying such a thing, some days I can see where he’s coming from. Like today, for example.

Senate Bill 335 is a case in point. It would replace West Virginia’s income tax with a steep boost on consumption taxes. The bill has numerous sponsors in the Senate, with the notable exception of Republican Finance Chairman Mike Hall, who knows more about the state budget than just about anybody ever has.

So what’s wrong with the bill?

For starters, it would slam middle-class and low-income families with much higher taxes while granting a huge break to those at the top.

West Virginia’s state and local tax systems are already topsy-turvy, with the poorest 20 percent paying a higher percentage of their incomes in taxes than the wealthiest 1 percent (8.7 percent vs 6.5 percent).

One reason for that is our regressive sales tax, which is basically a consumption tax. The imbalance here is even more extreme, with the poorest fifth paying more than six times the percentage rate of their income than the wealthiest 1 percent.

Eliminating the personal income tax, which is the only state tax actually based on the ability to pay, and replacing it with the proposed consumption tax would increase taxes on the bottom 80 percent, while providing breaks for the very wealthiest. Assuming revenue neutrality, middle-class families would pay over $1,000 more per year, while those earning $353,000 or more per year would see a tax cut of more than $27,000 according to an analysis by the Institute for Tax and Economic Policy.

The reason for this is pretty obvious. Middle-class and low-income people of necessity spend more of their money on basic necessities than the wealthy. According to the U.S. Bureau of Labor Statistics, people earning less than $70,000 per year typically spend 114 percent of their income (think debt) while those earning over $200,000 per year spend around 50 percent.

This shift in tax policy would only increase income inequality, which has skyrocketed in recent decades. In West Virginia, for example, between 1979 and 2011, the average real income in the state increased by only 3.9 percent, compared to the U.S. average of 14.8 percent. But over that time, all of the income growth was gained by the top 1 percent of richest West Virginians. Real income for them grew by more than 71 percent, while it fell for the bottom 99 by almost 3 percent. This bill would be another step in the wrong direction.

SB 335 wouldn’t be great for state businesses either. They already pay more in sales taxes than income taxes. Phasing out the income tax would likely mean a hit for them, as well.

Then there’s the border-county issue. I checked a map and found that 29 counties border another state (31, if you count tiny parts of Tucker and Summers). While small or moderate increases of excise taxes on some goods wouldn’t have much of an effect on consumer behavior, a major hike in consumption taxes would encourage people to take their business out of state or online, thus hurting the state’s economy.

Recently, Gov. Jim Justice memorably said West Virginia is like “a patient laying there, and blood is shooting to the ceiling.”

(Try getting that image out of your head.)

Sticking with that simile, SB 335 is like an unnecessary surgery that would make the bleeding even worse.