West Virginia News



State News Quick Hits: Criticism of "Business Climate" Rankings Grows, and More



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Nebraska’s Tax Modernization Committee, which we promised to keep tabs on in July, is scheduled to hold its final public hearings this week. But rather than wait to hear what the panel has to say, Governor Dave Heineman decided to renew his calls for lower property and income taxes. While some have argued that Nebraska’s property taxes are too high, slashing property taxes without increasing state aid to local governments would put significant strain on vital local services. Today, Nebraska ranks 43rd nationally in the amount of state aid it provides to local governments, and 49th in the aid it gives to schools. If Governor Heineman succeeds in his quest to cut state taxes, increasing local aid will become even more difficult. The Open Sky Policy Institute has issued thoughtful recommendations on this and other issues facing the Committee.

If you’re wondering whether you should put any stock in the Tax Foundation’s newest “Business Tax Climate Index,” the answer is No.  For starters, Good Jobs First has shown that, contrary to popular belief, the Tax Foundation’s rankings aren’t a very good predictor of how much a business would actually pay in taxes if it were located in any given state.  And now Governing magazine has taken a critical look at the rankings in a new article, and concludes that states earning high marks from the Tax Foundation don’t actually have stronger job markets or higher medium wages.

U.S. News & World Report is running an opinion piece by Carl Davis from our partner organization, the Institute on Taxation and Economic Policy (ITEP), highlighting the fact that the federal gas tax has not been raised in exactly 20 years – and has been losing value ever since. The essay draws heavily from research that ITEP published late last month, and concludes that “it's time for our elected officials to accept that keeping the gas tax cryogenically frozen at 18.4 cents per gallon is costing Americans a lot more than it's helping them.”

West Virginia is thinking about how best to use the tax revenues it expects to collect from sales of its natural gas resources. The Associated Press reports that “[f]or decades, coal from West Virginia's vast deposits was mined, loaded on rail cars and hauled off without leaving behind a lasting trust fund financed by the state's best-known commodity. Big coal's days are waning, but now a new bonanza in the natural gas fields has state leaders working to ensure history doesn't repeat itself.” According to the AP, the state’s Senate president, Jeff Kessler, is looking to use some of the severance tax revenues on oil and natural gas to create an enduring trust fund, as other states with significant natural resources have done. “His goal: a cushion of funds long after the gas is depleted to buoy an Appalachian mountain state chronically vexed by poverty, high joblessness, and cycles of boom and bust.”

Arkansas Advocates for Children and Families Executive Director, Rich Huddleston, was one of four Arkansas leaders invited to contribute to Talk Business Arkansas magazine with ideas for how to “construct a fairer state tax code.” His proposal (citing ITEP data) is here, and begins: “The goal of any good tax system is to raise enough revenue to fund critical public investments that improve well-being of children and families while also promoting economic growth and prosperity.”



Quick Hits in State News: Business Tax Breaks Get Panned in PA, Neo-Vouchers Take Hold in NH



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While Kansas recently repealed its only form of grocery tax relief (a credit for low-income families), West Virginia is moving in the opposite direction.  That state’s sales tax rate on groceries will drop by one percentage point starting on July 1 this year, and be repealed entirely midway through next year.

West Virginia revenue officials aren’t too enamored with any suggestion to increase the state’s already generous property tax breaks for senior citizens.  Using a $300,000 home as an example, the state’s deputy secretary of revenue explained how under today’s rules, a homeowner under 65 would pay $2,334 on that house while a homeowner over age 65 using the credit could pay as little as $764. Moreover, with the state’s eligible senior population expected to grow by 37 percent over the next decade, the cost of any tax breaks for older West Virginians is going to grow dramatically.

After much debate, South Carolina lawmakers appear to have come to an agreement on a regressive tax change that allows “pass-through” business income (which tends to go mainly to wealthy individuals rather than businesses) to be taxed at three percent instead of the five percent currently levied.

After the legislature overrode Governor John Lynch’s veto, New Hampshire became the latest state to adopt neo-vouchers: tax credits for corporations who contribute money to private school scholarship funds which end up diverting taxpayer dollars into corporate coffers.  In his veto message, the Governor wrote: "I believe that any tax credit program enacted by the Legislature must not weaken our public school system in New Hampshire, downshift additional costs on local communities or taxpayers, or allow private companies to determine where public school money will be spent.”

Tax experts asked by the Associated Press couldn’t find anything nice to say about Pennsylvania Governor Tom Corbett’s proposed $1.7 billion tax break for Shell Chemicals – the largest-ever financial incentive offered by the state – for the company to build an oil refinery. David Brunori from George Washington University said, “There's absolutely nothing good about what the governor is proposing" and a libertarian policy expert pointed out that government shouldn’t be covering the cost of risk for businesses through tax subsidies.



Cutting Food Sales Taxes: Right Intention, Wrong Policy



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Earlier this year, governors in West Virginia and Arkansas signed legislation to lower their states’ sales tax on food, a policy both had championed.  West Virginia lowered the state’s sales tax on food from 3 to 2 percent and Arkansas’ was reduced from 2 to 1.5 percent.

Unlike most states, West Virginia and Arkansas were doing just fine budget-wise, so the tax cut was “affordable” and did not come at the expense of critical and core public services, which are often sacrificed for tax cuts.  Pursuing cuts to food sales taxes also set Mike Beebe (AK) and Earl Ray Tomblin (W.VA) apart from other governors who pushed for regressive tax cuts that primarily benefited upper-income households and businesses.

West Virginia’s Tomblin recently upped the ante, too, asking lawmakers during a special August 2011 session to end the state’s sales tax on food altogether, given the state’s finances were continuing to perform well.  The House and Senate heeded the governor’s request and agreed to phase out the remaining two percent sales tax on food by July 1, 2013. 

The phase-out is contingent on the health of the state’s Rainy Day Fund, which must be equal to or greater than 12.5 percent of the General Revenue Fund at the end of 2012. If that goal is met, the sales tax on food will be reduced to one percent on July 1, 2012 and totally eradicated on July 1, 2013.

While West Virginia’s decision to eliminate the sales tax on food is certainly more beneficial to more families than other states’ efforts to eliminate corporate and personal income taxes, there are smarter, more targeted strategies available to lawmakers seeking to improve the fairness of the sales tax and support working families.

As an updated ITEP brief explains, targeted tax credits are a preferred alternative to exempting products, such as food, from the sales tax base. 

Sales tax exemptions have two main disadvantages as policy. First, they make the sales tax base (that is, the total dollar amount collected from taxable items) much narrower, and reduce the yield of the tax.  Second, they make the exemptions available to all taxpayers, regardless of need or income.  For example, the poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries while the rest goes to wealthier taxpayers who can more easily afford to pay the grocery tax.

Targeted credits, on the other hand: are designed to apply to specific income groups deemed to be most in need of tax relief; are available only to in-state residents; can be less expensive than exemptions, and; do not affect the stability of the sales tax as a revenue source.

Rather than wholly eliminate the sales tax on food, West Virginia lawmakers could have followed the model of 24 states which have wisely enacted a state Earned Income Tax Credit to ensure the tax cut will primarily benefit low- and moderate-income families, those who need help the most and spend a larger proportion of their incomes on food.  Alternatively, a refundable food tax credit, implemented in Kansas, Oklahoma and Idaho, which helps offset sales taxes paid on food, would be a more preferable policy as it is also 1) targeted to taxpayers who need it most and 2) less disruptive to the state’s revenue – two characteristics of the smartest tax policies.

Photo via Judy Baxter Creative Commons Attribution License 2.0



Grocery Tax Cuts Enacted in Arkansas and West Virginia



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Lawmakers in almost every state (44 according to the Center on Budget and Policy Priorities) must close significant budget gaps again this year.  Despite these continuing fiscal woes, a variety of costly tax cuts -- from reductions in corporate tax rates to new capital gains breaks -- have been proposed alongside massive spending cuts in many of these states.

But West Virginia and Arkansas are among the six states not reporting budget gaps this year -- a fact which has provided them with somewhat more flexibility to consider reducing taxes. In this context, both Arkansas and West Virginia lawmakers recently enacted reductions in their states' sales taxes on groceries.  As of July 1, 2011, Arkansas’ sales tax rate on groceries will be lowered from 2 percent to 1.5 percent.  West Virginia’s rate will drop from 3 percent to 2 percent starting January 1, 2012.  These cuts were championed by Governors Beebe and Tomblin as a means to provide immediate assistance to taxpayers (in particular low-income households), and as a way to stimulate their states' economies. 

But reducing the sales tax on groceries is not the most targeted approach available to state lawmakers looking to support working families.  The poorest 40 percent of taxpayers only receive about 25 percent of the benefit from exempting groceries in most cases. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries.  Increasing Arkansas’s refundable state Earned Income Tax Credit (EITC) or enacting a state EITC in West Virginia would have been a better targeted alternative for ensuring that the tax cuts would reach low- and middle-income working families.  However, when viewed alongside the sharply regressive and completely unaffordable tax cuts being considered in so many other states, Arkansas and West Virginia lawmakers should receive some credit for at least enacting progressive tax cuts that benefit low- and moderate-income households the most as a share of their incomes.



Super Bowl Ad about Taxes from Corporate Astroturf Group



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The last place you would ever expect a discussion of tax policy is in the sea of Super Bowl commercials about beer, cars, and Doritos, yet the organization Americans Against Food Taxes spent over $3 million to change that last Sunday.

The ad, called “Give Me a Break”, features a nice woman shopping in a grocery store,  explaining how she does not want the government interfering with her personal life by attempting to place taxes on soda, juice, or even flavored water. The goal of the ad is to portray objections to soda taxes as if they are grounded in the concerns of ordinary Americans.

But Americans Against Food Taxes is anything but a grassroots organization. Its funding comes from a coalition of corporate interests including Coca-Cola, McDonalds and the U.S. Chamber of Commerce.

It is easy to understand why these groups are concerned about soda taxes, which were once considered a way to help pay for health care reform. The entire purpose of these taxes is to discourage the consumption of their products. As the Center on Budget and Policy Priorities explains in making the case for a soda tax, such a tax could be used to dramatically reduce obesity and health care costs and produce better health outcomes across the nation. Adding to this, the revenue raised could be dedicated to funding health care programs, which could further improve the general welfare.

These taxes may spread, at least at the state level.  In its analysis of the ad, Politifact verifies the ad’s claim that politicians are planning to impose additional taxes on soda and other groceries, writing that “legislators have introduced bills to impose or raise the tax on sodas and/or snack foods in Arizona, Connecticut, Hawaii, Mississippi, New Mexico, New York, Oklahoma, Oregon, South Dakota, Vermont and West Virginia.”

It's true that taxes on food generally are regressive, and taxes on sugary drinks are no exception according to a recent study. It's a bad idea to rely on this sort of tax purely to raise revenue, but if the goal of the tax is to change behavior for health reasons, then such a tax might be a reasonable tool for social policy. We have often said the same about cigarette taxes, which are a bad way to raise revenue but a reasonable way to discourage an unhealthy behavior.

With so many states considering soda taxes and the corporate interests revving up their own campaign, the “Give Me a Break” ad may just be the opening shot in the big food tax battles to come.



Bad and Less Bad: Business Tax Cuts vs. Grocery Tax Cuts



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Some politicians in state capitals across the U.S. seem convinced that tax cuts for businesses and the wealthy are the best way to accelerate economic recovery. In two states, governors are proposing instead to cut taxes on groceries, which is a more effective, though not exactly flawless, way to help ordinary families. The tradeoff to any tax cut, of course, is unaffordable cuts to essential services including education, public safety, and health care.

In Wisconsin, state lawmakers agreed on a business tax cut that would add about $50 million to the budget deficit.  The Republican controlled legislature and newly elected Governor Scott Walker believe that the tax cuts will leave everybody with more money and leave the state with an improved economy.  Incredibly, Walker’s proposal rests on the assumption that the tax cuts will lure businesses away from Illinois, which recently saw an increase in its income tax, rather than fostering young, developing businesses. 

In Iowa, where a similar $300 million business tax cut is being discussed, critics of Governor Terry Branstad point out that essential social services are being axed in favor of pro-business policies.

In Arizona, Governor Jan Brewer is proposing to cut taxes on high-wage industries while further reducing funding for Medicaid, universities, community colleges, and K-12 education.  

Similar tax cuts are being proposed in New York, Washington, Michigan, Minnesota, and South Carolina. All of these plans prioritize tax breaks for business over providing essential services to those most affected by the economic downturn.  

The Governors of West Virginia and Arkansas have arrived at an entirely different tax-cutting proposal: reducing the sales tax on groceries.  Like lawmakers who support business tax cuts, Governors Tomblin and Beebe believe their brand of tax cuts will circulate quickly throughout the economy, providing necessary relief to the taxpaying public while stimulating the economy. 

Governor Mike Beebe of Arkansas wants to cut the sales tax on groceries by a half-cent and has said it is the only tax cut he will consider this year.  In West Virginia, Governor Earl Ray Tomblin wants to reduce the grocery sales tax from 3 to 2 cents and would ultimately like to see it eliminated entirely.

While the proposals to cut the sales tax on groceries are a welcome development compared to proposed tax cuts for businesses and the wealthy, there are still two problems with them. 

First and foremost, states are in dire need of revenue this year as they face the most significant budget challenge yet since the start of the recession.  Every dollar lost to a tax cut will have to be made up by an even deeper cut in spending. 

Second, reducing the sales tax on groceries is not the most targeted approach available to state leaders looking to support working families.  The poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries. 

Enacting or increasing a refundable state Earned Income Tax Credit (EITC) or other low-income refundable credit would be a more affordable and better targeted alternative to ensure that tax cuts reach low- and middle-income working families.  Tax cuts that directly benefit low-wage workers are especially beneficial to the general economy because low-wage workers immediately spend their refunds out of necessity.  By pumping the money back into the economy, the tax cut goes further in stimulating the economy than tax cuts for the wealthy or businesses.

Instead of pursuing tax cuts for businesses and wealthy individuals, state lawmakers should be working to alleviate hardship on the most vulnerable.  Indeed, the governors in West Virginia and Arkansas may end up being much more efficient at helping their state economies rebound than the “business friendly" governors in Wisconsin and Iowa.



State Transparency Report Card and Other Resources Released



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Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.



New 50 State ITEP Report Released: State Tax Policies CAN Help Reduce Poverty



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ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.



ITEP's "Who Pays?" Report Renews Focus on Tax Fairness Across the Nation



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This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.



Billionaire Oil Man & West Virginia Center on Budget and Policy Have Their Say about Tax Incentives



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Billionaire George Kaiser, head of Kaiser-Francis Oil Co., recently did something unusual for someone in his line of work. He told the truth about the subsidies that the oil and gas industry receives to the Oklahoma House Appropriations and Budget Committee. During his testimony, "Kaiser said he could "say unequivocally" that the tax subsidies in question have never influenced his companies' decisions to drill or restore any well in Oklahoma." Kaiser even joked, "In fact, I may lose my day job as a result of my testimony."

Kaiser focused his comments on the number of Oklahomans who could receive health care (125,000) and the raises that could be given to teachers ($1,300 each) if the state's priorities changed and the average $75 million in tax credits given to the energy industry over the last four years were put toward other priorities.

Business analysts know that if a company is making business decisions based on tax breaks, then the company isn't on very strong footing to begin with. But comments like these made by billionaire businessmen are quite helpful in cutting through the false claims made about taxes.

Speaking of ineffective subsidies, this week the West Virginia Center on Budget and Policy released an interesting report Money for Nothing: Do Business Subsidies Create Jobs or Leave Workers in Dire Straights? The report details cases of private West Virginia companies cutting jobs even after receiving taxpayer funded subsidies. Accountability and transparency are necessary to ensure that policymakers and the public aren't funding incentives that ultimately do no real good for West Virginia. The author suggests concrete steps that can be taken to ensure both accountability and transparency, including accessible subsidy disclosure, publishing outcome data, enacting claw-back provisions, and the creation of a unified state development budget.



Gloom & Boom



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States' collective fiscal outlook appears to be quite dim and could get even darker in the months ahead according to a report released this week by the National Conference of State Legislators (NCSL). The report notes that, in the aggregate, states experienced a $40 billion budget gap for fiscal year 2009, a chasm that has been bridged largely through reductions in spending.

Not every state's budget is shrouded in gloom, however. Some states derive significant revenue from severance taxes (taxes imposed on the extraction of natural resources like oil and natural gas) and have economies closely tied to these industries. These states, Louisiana, North Dakota, and Wyoming for example, are enjoying substantial budget surpluses.

Given the volatility of energy markets, these surpluses are likely a temporary phenomenon, but that hasn't stopped states from considering and enacting tax cuts that would permanently reduce revenue. Earlier this year, Louisiana briefly weighed the idea of repealing its income tax altogether, only to settle on an oh-so-modest annual cut of $300 million. North Dakota has not only revived its property tax debate from a few years ago, but may also place on this November's ballot a measure that would slash the personal income tax by 50 percent and the corporate income tax by 15 percent. In this context, a plan backed by West Virginia Republicans to completely exempt groceries from the state sales tax appears far more reasonable in scope - and would certainly help to improve the progressivity of the state's tax system. However, it would still likely leave the Mountain State with inadequate revenues once oil and gas prices come back to earth.

Perhaps the most responsible - and fair - approach to surpluses generated by skyrocketing severance tax revenue comes from New Mexico, where Governor Bill Richardson this past week put forward a proposal to dedicate the majority of the state's projected $400 million surplus to one-time tax rebates and to highway construction. Richardson's proposal does contain some permanent changes in tax law, such as an expansion of the state's working families tax credit, but they appear to be targeted towards those low- and moderate-income taxpayers who are facing the greatest challenges from the nationwide foreclosure crisis and from rising fuel and food prices.



Anti-Property Tax Sentiment More Popular Than Santa Claus



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All across the country property tax bills are coming due and outrage about the most unpopular tax is growing. Proposals for various types of property tax cuts, reforms, and relief abound.

In Michigan, legislators are proposing to limit property tax increases and make it easier for homeowners to appeal their assessments. In West Virginia lawmakers want to freeze property taxes for seniors, and also limit property tax increases for younger homeowners. Politicians in Utah are considering a broad range of options including changing school district funding from reliance on property taxes to sales taxes and increasing their state's circuit breaker credit. Property taxes tend to be the tax that everybody loves to hate. The tax comes due in a lump sum, it's usually difficult to understand, and often it's not based on one's ability to pay.

Lawmakers in these three states and others should investigate property tax credits that ensure that low-income folks aren't burdened by the tax. While it may be popular with constituents to discuss property tax cuts, it's vital that replacement revenue be identified as well.



Tax Reform? No. Save an Antiquated Pastime that Can't Support Itself? Yes.



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In many ways, Maryland's current debate over legalized gambling is depressingly familiar. Faced with a loophole-ridden and unfair tax system that cries out for progressive reform, some elected officials want to introduce thousands of slot machines as a politically palatable revenue-raising alternative. But Maryland offers an interesting, if bizarre, twist. Governor Martin O'Malley's administration is arguing that slot machines would make an excellent economic development tool for propping up the state's ailing horse-racing industry.

About the best one can say about the idea of providing tax subsidies for such a small and distinctly 19th-century industry is that it's less expensive than the more conventional smokestack-chasing other states continue to engage in. But Maryland isn't the first state that's had this idea -- and neighboring Delaware's experience has not exactly yielded dividends for that state's racing industry. And as an excellent Washington Post editorial explains, the environmental and economic policy goals the administration allegedly seeks to achieve with slots are a red herring.

The author of the O'Malley administration report that makes the economic development-based pitch for slots, Thomas Perez, claims that the introduction of slots in neighboring states has "revitalized the previously moribund horse racing industries in those states." Perez describes his report as "a fact finding tour of racetracks in Delaware, West Virginia and Pennsylvania." Perez's research techniques included counting the number of Maryland license plates in a West Virginia parking lot -- but his time might have been better spent just asking West Virginia's Racing Commission chairman, who sees "no correlation... inverse, in fact" between their 1994 introduction of slots at racetracks and the current health of that state's racing industry.



Corporate Tax Reform Odd Couple: West Virginia and New York



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Other than both bordering on Pennsylvania, West Virginia and New York aren't generally seen as having too much in common ... until this past week. In agreeing to a budget for fiscal year 2008, policymakers in New York followed the lead of their counterparts in the Mountain State and incorporated combined reporting into their corporate income tax. Combined reporting, as ITEP's February policy brief explains, is the "most effective approach to combating corporate tax avoidance" available to state lawmakers. West Virginia legislation to institute combined reporting last month and, with New York's more recent step forward, the number of states using this essential approach to corporate taxation climbs to twenty. It could climb higher still by year's end, as North Carolina Governor Mike Easley, like the Governors of Massachusetts, Iowa, Michigan, and Pennsylvania, also now supports combined reporting. See this ITEP table to find out where your state stands on this important tax reform.



Mixed News in the Mountain State



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West Virginia appears poised to take a major step forward in combating tax avoidance by large and profitable businesses. Legislation (SB 749) passed last weekend would institute mandatory combined reporting of corporate income beginning in 2009. Combined reporting is widely viewed as the best way to stop businesses from avoiding taxes by shifting income (on paper) from one state to another. Governor Joe Manchin is expected to sign the measure into law.

SB 749 would make West Virginia the third state in four years to put combined reporting into practice, but this progress comes at a price. The same bill would also reduce West Virginia's business franchise tax rate from 0.55 percent to 0.20 percent over the next five years. While combined reporting is expected to generate $33 million per year once fully implemented, the reduction in the business tax rate is anticipated to lose as much as $75 million annually.

For more on combined reporting in West Virginia, see West Virginia Citizen Action Group's recent policy issue brief.



Hot Topic: Severance Taxes



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States that enjoy a large endowment of mineral resources usually levy a severance tax on the extraction of these resources and these taxes are receiving a lot of attention these days. In Colorado the Auditor's office found that many oil and gas companies may not be filing tax returns. Officials in West Virginia worry that coal severance taxes are on the decline there, while advocates in Arkansas say that now is the time for severance tax reform. For more on this, read the report "Digging Deeper," from Arkansas Advocates for Children and Families.



West Virginia High Court Rejects Argument to Restrict States from Taxing Income of Multi-state Companies



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The highest court in West Virginia has rebuffed an attempt to further restrict the right of states to tax the profits of multi-state corporations.

As explained in a new ITEP paper, the U.S. Supreme Court has already restricted the ability of states to impose sales taxes on remote sales by out-of-state companies, and Congress passed a law back in 1959 that restricts states' ability to tax corporate income generated by remote sales of goods into a state. In West Virginia tax Commissioner v. MBNA America Bank, MBNA argued that their profits in West Virginia "its gross receipts in the state exceeded $10 million during one of the years in question" could not be taxed under the U.S. Constitution because MBNA had no physical presence in the state.

Fortunately, the court found that the amount of business MBNA has done in West Virginia amounts to "economic presence" in the state that benefits from the services provided by West Virginia ... and that justifies the imposition of the state corporate income tax. Other state courts should follow West Virginia's lead in this area of jurisprudence.

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