CHARLESTON, W.Va. (AP) – With West Virginia on the verge of losing a new congressional seat due to its steady population decline, Republican lawmakers believe a massive income tax cut is key to reversing the trend. But figuring out how to do that without harming the state’s most vulnerable or cutting a huge hole in the budget has turned out to be complicated.
An attempt to compromise on how to pay for the tax cut hit a major roadblock on Friday.
Over the weekend that the legislative session will end, Republican Governor Jim Justice said the House of Representatives will not take up his bill, which narrowly received Senate approval.
“It is definitely closing the door for the time being,” Justice told reporters Friday, adding that he could call back lawmakers to include it. “I heard the door slam very, very loudly when the House said we are not answering it.”
While the United States has doubled its population in the past seven decades, West Virginia went the other way. It is the only state in the country with fewer inhabitants than in 1950. It closely follows the long-term decline of the coal industry. Figures from the 2020 U.S. Census, expected to be released later this month, are expected to reduce the number of seats in West Virginia. in the US House from three to two.
For weeks, Justice and other Republicans said a pandemic that devastated some state budgets highlighted the bright side of their state. They say the towering mountain vistas, wide open countryside, and low cost of living have given the state a chance to attract new residents through the lure of lower taxes.
“The whole world is watching us now,” Republican Gov. Jim Justice said this week. “There is an enormous urgency.”
Justice quashed House Republicans for effectively killing the bill. He promised to launch a ‘roadshow’ to get the state to advertise his income tax proposal. He said he could convene a special legislative session later this year.
Despite a one-party regime in the state, Justice has struggled to convince some of its fellow Republicans what a major tax cut should look like. Many say that a state that has been facing economic hardship for a long time should be careful about raising sales taxes or taking other steps that could harm the most vulnerable.
Critics had said leaders are embarking on a population growth experiment likely to lead to cuts in education and social services in one of the poorest states in the country. The latest plan approved by the Senate after weeks of wrangling would cut income tax by 40% and increase sales tax from 6% to 8%, which would be the highest in the nation. Justice originally aimed for a 60% reduction in income tax.
It also includes a slew of tax increases for energy companies and the services sector. A controversial tax on groceries was dropped from Senate law after the governor called it a “showstopper.”
In an interview before his law came to a standstill, Justice said the state is able to benefit from an income tax cut due to its proximity to the East Coast and population centers.
“And if you don’t think this is going to drive the population to the state of West Virginia, you’re completely nuts,” said Justice.
West Virginia’s population has fallen 11% since 1950, when it peaked at just over 2 million residents and dragged its economy into the coal mines.
Experts say there is no consensus on whether low taxes stimulate population growth.
“There is no credible evidence to show this,” said Kim Rueben, the director of the national and local finance initiative at the Urban-Brookings Tax Policy Center. She said taxes can be one of the factors that drive businesses and residents, but it’s not the only one.
“We put a lot of our eggs in that basket that will grow our population, that will help pay for that growth,” said Sean O’Leary, a senior policy analyst at the West Virginia Center on Budget & Policy, who has been critical of the proposal.
Jared Walczak of the Washington-based Tax Foundation, a right-leaning think tank, points to nine states that have no income taxes and says, “It really does appeal.”
But he added, “There is also no such thing as a panacea in taxation. The goal is to grow the economy. And he warned against overly rosy estimates: “It’s sometimes easy to get carried away with what the effects will be.”
On Good Friday, about two dozen people outside the Charleston State Capitol held signs and spoke against the legislature’s proposals that would allow for cuts in higher education.
“It is immoral, inhumane and inadmissible to fill our pockets with the guts of the poor,” said Pastor Ron English, president of the Charleston NAACP.
The income tax pulls up about 40% of state revenue, leaving the GOP super majority in the state house mired in disagreements on how to balance future budgets. More conservative members wanted significant spending cuts and were against any hikes in taxes for energy companies.
Justice, a businessman who invests in coal, has said companies can afford to “throw in a few extra cents,” while critics in his party said the declining industry has endured enough pain.
The Senate passed its bill 18-16 Wednesday night, after five Republicans joined all 11 Democrats to vote against.
Justice, a former Democrat, has opposed lowering taxes if it means putting “an incredible burden on those who struggle the most.”
But a luxury tax on an item costing at least $ 5,000, defended by the governor, failed to make it to the Senate version. Republican Senate President Craig Blair had initially expressed his openness to the idea at a compromise meeting on Monday.
Blair represents Berkeley County, a bright spot of growth in the eastern state of the state. The largest city, Martinsburg, is about 1.5 hours from Washington, DC, and the county borders both Virginia and Maryland.
Blair and other Republicans in West Virginia have visions of enticing new residents – and their spending habits – to settle a little further west. And their hope, if they can negotiate a new compromise, is that the prospect of paying little or no income tax is just the right choice to lure them there.