Tuesday, September 13, 2005

Ruling Party Stonewalls on Food Tax, Passes 1% Food Tax Reduction Without Vote on GOP Amendments

Today, both houses of the Legislature passed and sent to Governor Manchin House Bill 401, reducing the sales tax on groceries from 6% to 5% on January 1, 2006. Ordinarily, this would be a cause to celebrate--the first cut in personal taxes in West Virginians in decades. However, the Democratic leadership repeatedly stonewalled attempts by Republicans to propose amendments to the bill, citing a restriction in the Governor's call of the special session that the Governor's lawyer and at least four justices of the state Supreme Court have said would not prevent consideration of such amendments.

Delegate Patrick Lane, R-Kanawha, tried to propose the first of the amendments, which would have immediately and completely exempted groceries from the state sales tax. Others, like Delegate Cindy Frich, R-Monongalia, proposed a full phase-out of the tax over a short period of time. On a 66-33 vote, the House of Delegates ruled these amendments were out of order. Delegate Tom Louisos, D-Fayette, was the only Democrat to vote with the Republicans on this question. Delegate Joe C. Ferrell, D-Logan, was absent. Over in the Senate, the same question failed on an 18-14 vote, with Senator John Pat Fanning, D-McDowell, being the lone Democrat to support the Republican bid to completely eliminate the food tax.

Before succumbing to a Democratic spin doctor who says completely repealing the food tax will be fiscally irresponsible, consider the following. During this special session, the Legislature also passed pay raises for all state employees whose annual cost is more than three times the size of the food tax cut. since the last major state tax increase in 1989, our state's budget has grown far faster than either (i) the combination of inflation and changes in population or (ii) growth in personal income.

The state's Comprehensive Annual Financial Reports show that total state tax revenues have climbed from $1.4 billion in FY 1989 to $3.0 billion in FY 2004--an increase of 114%. More impressively, during that same period, sales tax revenues grew from $372 million to $963 million (an increase of 159%) and personal income tax revenues grew from $467 million to over $1 billion (an increase of 114%). From 1989 to 2004, West Virginians' total personal income grew from $23.3 billion to $44.6 billion--an increase of 91%. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index increased by 52% over the same period. The state's population did not have a stastically significant difference between 1989 (1,807,000 estimated) and 2004 (1,810,000 estimated). Thanks to the Ruling Party's voracious appetite for our money, the state's total tax revenues have increased from 1989 to 2004 by over 2 times the combined rate of inflation and population growth and 25 percent faster than personal income.

The tax burden faced by West Virginians has grown faster than inflation and even faster than personal incomes. If overall state tax revenues had only grown at the same rate as personal income, FY 2004 state tax revenues would have been $2.67 billion rather than $3.0 billion. This would have resulted in a savings to the taxpayers of $333 million--enough to completely eliminate the food tax, the business franchise tax, and reduce the sales tax on remaining taxable items from 6% to 5%--excluding any growth in revenues resulting from likely economic growth precipitated by such tax cuts. Had state tax revenues only grown at the rate of inflation and population growth--as required in Colorado under the Taxpayers Bill of Rights unless voter approval is given for additional spending--FY 2004 state tax revenues would have been just over $2.1 billion--for a savings to the taxpayers of almost $800 million, enough to reduce taxes even further and pay down the state's unfunded pension liabilities at a substantially greater rate than has been done so far.

Does the Ruling Party think the people of West Virginia believe a 1/6 reduction in the food tax will really make a difference in their lives? Does the Ruling Party really think a 1/6 reduction in the food tax will positively influence any business considering locating in a border area when deciding between the West Virginia side or the other state? Does the Ruling Party expect us to somehow be grateful to them and return them to power in 14 months and maybe, for the first time since 1998, give them additional seats in either house? They sure seem to think so.

While the Ruling Party had the cover of the 1% limit to avert a direct vote on repealing the food tax this time, they will have no such cover in January. Republican legislators--and maybe enough of their Democratic colleagues--will return with bills to finish the job during next year's regular session. Next year, we need to go all the way--and not just another 1%. When we finally ax the food tax, we'll target another tax for reduction or elimination. West Virginia's tax burden is excessive and is an impediment to the private sector.