CHARLESTON – West Virginians soon could see the elimination of their state income tax, according to the chairman of a new state Senate select committee.
Senator Robert Karnes, R-Upshur, is leading the new Select Committee on Tax Reform.
He and Senate President Mitch Carmichael both said comprehensive tax reform is needed to help spur the state’s economy.
“We have made great strides in the last two sessions with major legal reform and regulatory reform,” Karnes said. “I am excited to be part of tackling what may be the last major obstacle to a strong-growing economy for West Virginia.
“Comprehensive tax reform will revamp our antiquated, anti-growth tax system and replace it with a proven, pro-growth tax code that can draw job creators from a broad range of industries, and will guarantee West Virginia its rightful place as a national leader in the American comeback story.”
Carmichael, R-Jackson, said he is eager to see the legislation that will be reported out of this committee.
“We must examine every method to improve the West Virginia economy, and that certainly will include comprehensive tax reform. Our focus is to create private sector jobs and opportunities for our citizens,” he said. “Other states have achieved significant growth as a result of fundamentally overhauling their tax code.
“Why wouldn’t the West Virginia Senate pursue tax strategies that have a proven record of success in other states?”
Karnes is president of FSIS Inc., a national communications integration and maintenance company. He has more than 20 years of experience troubleshooting complex IT systems and has traveled throughout North America building and servicing satellite and terrestrial networks. Because he has worked on job sites in all 50 states, Karnes said he seen what works and what doesn’t.
“I have seen that the states that have low or no income tax do better than states with higher ones,” he said. “We need to flatten or shrink it, or eliminate it. Now, that isn’t going to happen in Year One. But we can put West Virginia on a course to make significant reductions in our income tax or to eventually eliminate it.”
Carmichael agrees.
“It’s pretty well validated that states that have fundamentally changed tax code to shift away from personal income taxes are more prosperous,” he said. “Those states focus more on a tax on consumption rather than a tax on production. They’ve seen significantly higher growth.
“One of those states is Florida. I has no income tax. But there are other states. Tennessee is similar. It has shifted away from personal income tax. (It has no tax on salaries and wages).
“Where this has happened in other states, there is growth and more jobs created. We want to take a hard look at that. We’d be crazy not to look at that.”
Karnes said nine states don’t have an income tax. He said the average rate of growth for those states over the last 100 years is about 300 percent the rate of states with income taxes. He noted that South Dakota has outgrown 22 states, and it’s the slowest growing non-income tax state. He also pointed to success in New Hampshire and Washington State, which doesn’t have income taxes. He also said Colorado is seeing growth with its low and flat income tax.
“We need to collapse some of those rates,” Carmichael said. “The ultimate goal is to do away with the personal income tax.”
Karnes also said the committee will look at property taxes, particularly business equipment and inventory.
“That’s bad for a lot of businesses,” he said. “It absolutely has to be looked at. We need to provide some relief there or even eliminate that tax. But we also have to keep in mind that it is an important tax for our local governments. So we’d have to find alternate sources for counties, cities and school systems.”
As for personal property taxes, Karnes said they “should be flat and low and across the board.” He said real estate property taxes in West Virginia are reasonable, and that our sales tax is below the national average.
Two other taxes Karnes mentioned examining are the corporate net income tax and severance taxes.
“We continue to tax business equipment and inventory,” Carmichael said. “It’s a job-killing tax. We want to take a look at a way to keep the counties from experiencing negative fallout, but we want to try to offset those costs to corporations so than can reinvest in West Virginia and put our people back to work.
As for severance taxes on coal and natural gas and timber, (new Gov. Jim) Justice suggested a sliding scale. I’m intrigued by the idea. To have a sliding scale so that the price of coal or gas or timber is high in the market, the tax is correspondingly higher. The producers are still making money and not leaving West Virginia. But when it’s very low in the market, then we should reduce that severance tax to make the company more competitive.”
Karnes said economists back up these ideas.
“There are some taxes that economists generally agree you should do and things you shouldn’t do, regardless of their philosophical thinking,” Karnes said. “Basically, everything we should be doing, we’re not doing. And everything we shouldn’t be doing, we are.
“We have to figure out which taxes are hurting us. Then, we have to figure out how to fill this $500 million hole in the state budget. We do know we have a massive budget problem. I’m going to focus on what taxes we can work on to make our economy more palatable to small businesses.”
Karnes said he thinks tax reform is the last major step needing examined by the Legislature.
“We have done a lot of tort reform and regulatory reform,” he said. “They’ve all been good, but this is probably the biggest obstacle left. We have other things we need to fix, such as education.
“And, we do need to do more regarding regulations and tort reform. But like Gov. Justice has said, we need money but not new taxes.”
Carmichael echoed Karnes’ sentiments.
“What I have heard from Gov. Justice is that our people can’t absorb any more taxes, but we need more money,” he said. “So, we need to reform the tax code to broaden the base and lower the rates.
“We might not get there overnight, but we are excited to start bringing that growth to West Virginia.
“It costs the state tons of money for people to not have a job. Eliminating some of the problems can produce significant amounts of money.”
Senate Majority Whip Craig Blair, R-Berkeley, will serve as committee vice chairman. Other committee members are Senate Majority Leader Ryan Ferns, R-Ohio; Senator Greg Boso, R-Nicholas; Senator Ed Gaunch, R-Kanawha; Senator Glenn Jeffries, D-Putnam; and Senator Robert Plymale, D-Wayne.