Groundhog Day, WV style

In Bill Murray’s classic movie, “Groundhog Day,” the main character winds up having to live through the same day over and over.

West Virginia’s ongoing budget crisis and standoff is starting to remind me of that ... minus the personal growth, romance and happy ending.

The twisted path to our current mess goes back several years, beginning with hundreds of millions of dollars in tax cuts first enacted around 10 years ago. We were told that the business tax cuts “would pay for themselves,” something which has never happened anywhere.

They didn’t.

We were also told the cuts would lead to the creation of many new jobs.

They didn’t.

We have several thousand fewer private sector jobs in the state now than 10 years ago.

Take those ingredients, shake, and throw in market-driven declines in the coal and gas industries, and that’s the recipe for how we got here.

Over the past several years, around $600 million has been cut from the state budget, including higher-education spending, which has declined in absolute and relative terms. There’s not a lot of fat left to trim. Further cuts would likely harm kids, college students of all ages, seniors, veterans and working people, not to mention everyone else.

Many of the current crop of legislators are opposed to tax increases to make up the difference. Last year, the budget controversy nearly led to a partial state shutdown. And things aren’t all that rosy this year.

One idea for a resolution to this problem is a “compromise” proposal supported by the Senate and Gov. Jim Justice, all for the best of reasons.

On the positive side, the compromise would avoid the possibility of a partial shutdown and would provide a temporary increase in revenue.

On the downside, proposed cuts to the state income tax would cost the state more over time than any increases in revenue from consumption taxes.

This would mean an ongoing budget crisis every year, with more and more painful cuts to things we need, like schools, higher and vocation education, public safety, health care, etc.

That would be the bad “Groundhog Day” part.

On top of that, the kinds of taxes that would increase are regressive, meaning they would hit people with low incomes hardest. Those with higher incomes would get a big break, since income taxes are progressive, in that they are the only state tax actually based on ability to pay: The rate goes up a bit as income grows.

It’s been argued that this shift from income to consumption taxes would be the biggest tax cut for the rich in West Virginia history, which is saying something.

Think Robin Hood in reverse.

There is a better way. A number of citizen groups, as well as political leaders, have proposed a simple solution to the mess that would avoid cuts to education, public broadcasting, higher ed, the Promise Scholarship, health and human services, etc. It would avert a shutdown. It would not blow a huge hole into future state budgets. It would also avoid the “Groundhog Day” effect of repeated annual crises.

The proposal:

1. A modest increase in the sales tax from 6 percent to 6.5 percent.

2. Expand sales taxes to cover services and industries that have so far avoided taxation.

3. Enact a fair-share tax of 1 percent on incomes over $200,000.

4. Offset the impact of higher sales taxes on low income families by enacting a 5 percent Earned Income Tax Credit.

Taken together, these measures would provide around $270 million in revenue.

It’s not a silver bullet, but it could point the way to a fair solution, or at least shift the conversation to a more productive direction.

If we don’t come up with a better solution, on the order of this one, West Virginia is likely to share the fate of Kansas, where ill-advised tax cuts once again failed to deliver and left things in shambles.

In baseball, that would be called an unforced error.

You could also call it a series of really bad Groundhog Days.

(Note: this appeared in today's Charleston Gazette-Mail.)

Smoke and mirrors

One of the many bad ideas under consideration at the WV legislature is a bill that would replace WV's income tax with a tax on consumption. This would mean a huge cut for the wealthiest and a major tax increase for everyone else. It would also blow yet another hole in the state budget. We discuss this on the latest Front Porch.

Last time around, we discussed marijuana legalization, both chemical and recreational. My position is rather nuanced:

*if alcohol was good enough for my old man it's good enough for me; but

*considering all the ill **** that's legal, marijuana is pretty small potatoes; and

*medicinal marijuana could really provide relief for people dealing with several diseases; and

*it could be a much needed revenue generator if it was legalized, taxed and regulated.

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.