The bill pushed by the chamber’s Republicans raising the state sales tax from 6 cents on the dollar to 7 cents passed 22-12.
Sen. Robert Karnes, an Upshur County Republican and chief sponsor, said other states that cut income taxes are growing economically. Former Federal Reserve Chairman Alan Greenspan and several other economists say consumption taxes encourage savings and capital formation, he said.
“The entire drive … is to help West Virginia transition into a growth mode, moving more from an income-tax based approach to more of a consumption-tax based approach,” Karnes said. It envisions eventually ending the state income tax and would benefit the working poor, he said.
It would cut the top income tax rate from 6.5 to 5.45 percent. The lowest rate would drop from 3 percent to 1.85 percent.
Income taxes would further decline by 0.1 percent for every $50 million annual increase in collections from the revised sales, service and use tax above $1.8 billion.
Sen. Mike Woelfel, a Huntington Democrat, said the proposed overhaul benefits the rich while undercutting the middle class and especially the working poor.
“The food tax is regressive. Shifting the tax to a consumption tax is regressive,” Woelfel said. “You don’t have to graduate from the London School of Economics to know that. Everybody in here knows that.”
It would raise the state’s 6 percent general sales and use tax by 1 percent and apply it more broadly to services including waste disposal, funerals, cosmetology, barbering, telecommunications and non-medical personal services. The bill would impose the tax on food at 3.5 percent.
It would also cut the state’s 5 percent coal severance tax over five years to 2.5 percent.
Gov. Jim Justice, a mine owner, said Wednesday that cutting the tax on coal extraction is a mistake. He’s advocating tiered taxes on both natural gas and coal with percentages that would decline when the market is down and increase when the market is up.
Justice outlined his budget and tax proposals to more than 400 people in Morgantown. He also said afterward that this isn’t the time to start transitioning to end the state income tax when his administration and lawmakers face a large projected budget deficit. Negotiations with Republican and Democratic legislators in both houses are progressing, he said.
Justice said he won’t tolerate program and budget cuts that hurt people.
“If it comes to veto after veto I’d do it,” he said.
Republican majorities control both the Senate and House. Justice, in his first run for statewide office, was elected as a Democrat.