Cutting Taxes

The Journal, March 1, 2007

Out of the fog of legislative sessions, sometimes comes good legislation. That is the case with two bills forwarded to the full Senate by that chamber’s Finance Committee.

Senate Bill 750 eventually would reduce the corporate net income tax from the current 8.75 percent to 6.5 percent, while Senate Bill 751 eventually would eliminate over seven years the 0.55 percent business franchise tax.

The lead sponsor of both bills is Sen. Walt Helmick, D-Pocahontas, Senate Finance Committee chairman, who represents the 15th Senate District, which includes all of Morgan County and about the southwest quadrant of Berkeley County.

We like Helmick’s bills. These constitute real tax reform, not the panty-waist tax reform — if it can be called reform — that Gov. Joe Manchin called for during the special session last fall.

Helmick’s bills are a genuine commitment to tax reform. The bills are smart, prudent, gradual but definite. The Journal has called for precisely that style of tax reform in several areas including the business franchise tax and the sales tax on groceries.

The other thing we like is the attitude of senators like Finance Committee member Brooks McCabe, D-Kanawha, who says any deficit in the general revenue fund caused by the reduction in revenues from decreasing and eliminating the taxes can be made up through reducing government.

That is worth repeating: reducing government. What a concept.

West Virginia cannot afford the size of state government we now have. Tough decisions must be made; bullets must be bitten.

Certain groups and interests are going to be very upset if their sacred cow is gored in reducing the size of the state’s government, but we must expect, we must demand that our legislators do what it best for the people of West Virginia. The people is the only special interest group legislators should bow to.

The corporate net income tax and the business franchise tax generated a total of almost $350 million in fiscal year 2006. The revenues go into the general fund.

According to the governor’s Tax Modernization Project, it is estimated that for every percentage point the corporate net income tax is reduced, the state would lose $20 million in general revenue funds annually. By eventually reducing the rate by 2.25 percentage points, about $45 million would be lost in general revenues annually.

Also according to the Tax Modernization Project, reducing the business franchise tax, which is assessed for the privilege of doing business in West Virginia, would reduce general revenues by $17 million for every percentage point reduction. At the end of seven years, that would amount to $93.5 million.

The reason for reducing and eliminating the taxes is to stimulate economic development. Reducing the state’s corporate net income tax eventually to 6.5 percent would make it the second lowest of all West Virginia’s neighbors. Virginia’s equivalent tax would be 6 percent. West Virginia would be very competitive in recruiting and retaining businesses.

West Virginia is something like one of only four states in the Union with a business franchise tax or equivalent, Pennsylvania being one of the four. However, that state is in the process of eliminating its equivalent of the business franchise tax.

Again, without the business franchise tax, West Virginia would be more competitive in attracting economic development projects to the state.

The full Senate was to have voted on the bills Wednesday and at the time of this writing, the results were not yet available. Reportedly, the bills’ sponsors and members of the Senate Finance Committee feel confident the bills will pass the Senate.

They are not so confident the bills would be received as enthusiastically in the House of Delegates. We cannot imagine why, though. These bills are good for the economy of West Virginia and for the people who need jobs.

We would hope we can report the bills were passed by the Senate on Wednesday, and we would urge House leaders to take up the bills promptly and pass them onto the governor for his signature.