Senate Approves Tax Reform and Budget, Again

Members of the Senate have approved a budget for the upcoming fiscal year — for a second time this week.

The bill they approved Tuesday contains no new revenue for 2018 and makes major cuts to both higher education and Medicaid in order to find a balance, but the new version of the budget bill approved Thursday night is accompanied by yet another tax reform bill that now has bi-partisan support in the state’s upper chamber.

The passage of the budget and tax reform measures came after a contentious meeting Thursday morning that both Democrats and members of the House walked out of early after what Democratic Del. Lind Longstreth said were rude comments from a Republican Senator directed a Democrats.

Negotiations over a tax reform bill had broken down earlier in the week, causing both chambers to approve separate budgets with no new revenue for the 2018 fiscal year, but Justice — who decided to back the tax reform initiative on the final night of the regular session — wasn’t ready to walk away from the issue Thursday.

He called the meeting with lawmakers and a select group of lobbyists to push the issue and present one more tax reform bill.

“If we don’t do this, then we’ve got to cut. There’s no way around it. We’ve gotta cut,” Justice said, adding he’s not willing to make those cuts.

So, late Thursday night Senators were presented with yet another tax reform bill.

After countless variations over the past two months, this bill raises the sales tax to 6.5 percent and gets rid of exemptions for cell phones, gym memberships, and a number of other items and services. It restructures the state’s severance tax on coal, giving mining companies a break when the price per ton is low and charging them more when it’s high.

It creates an income tax exemption for military retirement and some Social Security pay and ends an $11.7 million sales tax transfer to the state road fund.

But the biggest piece is the reduction of the personal income tax. In this bill, the tax rate would be reduced by 5 percent on Jan. 1, 2018, for any income under $150,000. Wage earners in the highest brackets will not receive the large tax cuts that were once included in the Senate bill.

The bill proposes cutting the tax rates by another 5 percent each year for the following three years, but sets up economic triggers, or essentially revenue benchmarks that the state must meet for those additional reductions to kick in.

When put to a vote Thursday night, 30 of 34 Senators voted in favor of the bill, including 10 of 12 Democratic members, like Sen. Mike Romano.

“We really got everything we asked for,” he said. “We’re in a dire situation and we had to address that and close our budget deficit.”

During that morning meeting, Romano said, Democratic members of the Senate offered additional changes to the tax reform plan that were embraced by both the governor and Senate Republicans and incorporated into the bill that was placed before them.

“When you look at it, what the Republican caucus wanted was really a trickle-down theory budget that rewarded the very top wage earners at the expense of the middle class and working wage earners,” Romano said. “[We worked it] into a bill that gave a middle-class tax cut and still balanced the budget.”

Senate Majority Leader Ryan Ferns said those tax cuts in the top income brackets were not just for wage earners, but also for LLCs and other small businesses that could have used the cuts to create new jobs. But, he said, the latest bill is only the beginning.

“As much as people don’t probably want to hear this, this isn’t by any means the end of tax reform,” he said. “This is very much a small first step at taking a bite at the apple.”

After the passage of the revenue bill, Senators also voted with a bi-partisan majority to send a budget based on the new revenue to the House.

That budget matches what Justice presented in a revenue adjustment letter earlier this month and includes a 2 percent teacher pay raise, the full funding of Medicaid, limits higher education cuts to 2 percent for most schools and 4.4 percent for Marshall and West Virginia Universities, and essentially, according to Ferns, maintains government spending.

“This doesn’t reduce much government spending,” he said, “but it freezes government spending. We will spend in 2018 what we spent in 2017.”

Both bills will be sent to the House of Delegates, which could take them up in a floor session scheduled for 10 a.m. Friday.

Both Ferns and Romano are pleading with delegates to consider the latest versions, but House Republicans have been staunchly opposed to the personal income tax changes and the increase to the consumer sales tax since they were initially proposed.

House Speaker Tim Armstead spoke with reporters after the governor’s morning meeting, but before the Senate’s action Thursday night, saying that if Justice continued to push for tax reform, he would be shutting the government down.

 “If the governor is going to insist on introducing another bill to try to do something that has been voted down three times already, I don’t think that helps anything,” Armstead said. “I don’t think that gets us closer.”

Both the state Auditor and Treasurer’s Offices have said without a budget bill, they’ll begin having difficulties paying bills and payroll starting as soon as Monday, but lawmakers have until June 30 to pass a bill and avoid a government shutdown.