Saturday, September 03, 2005

Is Helmick Trying to Lose Next Year's Reelection Bid?

WV Senate Finance Committee Chairman Walt HelmickSometimes, you really have to wonder whether there is any limit to the apparent stupidity of some politicians. Today's case in point is Senate Finance Committee Chairman Walt Helmick. The following story appeared on the AP state wire this morning: Helmick says rising gas prices may nix tax cut.

Helmick's latest comments show that when it comes to fiscal policy, his views would better fit in Boston or San Francisco rather than West Virginia--much less the very conservative 15th Senatorial District in which he is expected to seek reelection next year. The 15th District's other state senator is Clark Barnes, Elkins Republican, who defeated Mike Ross last year despite Ross's very conservative positions on most issues, including both social and fiscal issues.

A recent poll conducted by the State Journal and RMS Strategies showed that 59% of West Virginians think state taxes are too high and should be reduced. Other polling shows that 84% of West Virginians support completely eliminating the sales tax on groceries.

While I do not support any reduction in the state's gas tax, including suspending the likely increase resulting from the variable average wholesale price rate, I strongly believe other state taxes should be cut to both relieve the tax burden faced by individuals as well as to promote private sector economic growth in West Virginia. The tax cuts we most need are, in the following order:

  1. Immediately repeal the food tax.
  2. Reduce the business franchise tax from 0.7% to 0.5% and establish a phased-in repeal of that tax.
  3. Increase the personal exemption from the state income tax from $2,000 to $5,000 and index it for inflation.
  4. Index the marginal rates of the state income tax for inflation and provide that the first adjustment adjust the rates from 1987, the year when the rates were last revised. The CPI has increased by approximately 72% between 1987 and 2005.
  5. Eliminate the marriage penalty in the state income tax rates. Currently, married couples pay according to the same rate schedule as single people. The rates should be revised by doubling the size of the brackets for married filing jointly and equalizing the brackets for singles and married filing separately.
  6. Reduce the corporate income tax from 9% to 7% or maybe 6.5%. However, it should not be lower than the top marginal rate for personal income taxes, which is currently 6.5%.

In lieu of these tax cuts, we might also implement the comprehensive tax reform plan proposed in 1999 by Governor Underwood's Commission on Fair Taxation and then cut the tax rates once that plan is implemented. The Commission was chaired by current state GOP Chairman Rob Capehart and included among its members House Finance Committee Chairman Harold Michael and former Senate Finance Committee Chairman Oshel Craigo. Even if we would cut taxes, our state's tax system still needs a fundamental structural overhaul. For the last several years, legislation to implement this plan has been introduced by several Republican delegates and senators but has not seen the light of day in either house's Finance Committee. This year's versions of that bill were SB 188 (Weeks & Yoder) and HB 2445 (Sumner, Sobonya, Wakim, Frich, Schoen & Ellem).

Also check out William Stewart's take on Helmick's position.

Wednesday, August 31, 2005

High Gas Prices Have Few Acceptable Remedies

Gas prices this morning in Charleston, West VirginiaIn case you have not heard the news, $3+ per gallon gasoline arrived in West Virginia this morning--$3.099 to be exact. Given the loss of oil production in the Gulf of Mexico and the loss of an estimated eight refineries, this was inevitable. The most painful aspect of this situation is the lack of an appropriate short-term fix and the longstanding neglect of the long-term efforts that could have mitigated this situation and which still need to be done to prevent future economic harm.

For the most part, my comments on gas prices have been generally restrained. As a free market capitalist, I am loath to even considering "solutions" that will do nothing to fix the problem and which will most likely exacerbate it.

Price Controls

Speed Limit 55No! No! No! We tinkered with this idea in the 1970s and all we got for it were gas lines, odd/even days, and a 55 mph national speed limit that became a joke to most people and compliance with which would put a person to sleep behind the wheel.

Hawaii is embarking upon this experiment again but I expect the Aloha State will quickly say "Aloha!" to the availability of fuel at all gas stations.

Gas Taxes

This section is particular to West Virginia but can be applied in most other states. Full or partial suspensions of gas taxes are a gimmick and do not resolve any of the underlying issues that have tripled the price at the pump over the last 6 years.

Article VI, Section 52 of the West Virginia Constitution requires that all gas taxes, registration fees, and other motor vehicle-related state taxes and fees be deposited in the State Road Fund and is used only for highways. Many other states have a variation of this firewall between the highway & general revenue funds. Presently, West Virginia's state gas tax is 27 cents per gallon, consisting of a flat rate of 20.5 cents per gallon plus a variable rate of 5 percent of the average wholesale price of gasoline in the months of July through October of the prior year. The flat rate was last adjusted in 1993 and would presently be worth 27.75 cents if it was indexed for inflation (click here for direct link to inflation calculator). The variable rate debuted in 1983 at a rate of 4.85 cents per gallon and did not change until 2002, when it increases to 5.15 cents per gallon and then to 6.5 cents per gallon last year. The variable rate will probably increase by several cents per gallon next year (and will finally increase, adjusted for inflation, to its original 1983 level).

In West Virginia's neighboring states, state gas taxes range from a low of 16 cents per gallon in Kentucky to 30 cents per gallon in Pennsylvania. The tax in Virginia is 17.5 cents, Maryland is 23.5 cents, and Ohio is 28 cents. Unlike our neighboring states, West Virginia is still building new, toll-free roads through difficult terrain and provides full maintenance of all roads, including local roads in unincorporated areas. Maryland and Virginia are planning their new road projects as toll roads. Kentucky has reached the end of its existing road-building plans and does a poor job of winter snow removal (which often closes schools for weeks in the mountain counties). Pennsylvania, despite its high gas tax, is not only building new toll-free roads but is also building toll roads and requires local governments to pay for local road maintenance (which is funded by high property taxes).

While I believe West Virginians need significant tax relief regardless of the price of gas, the gas tax is not the best option. We would be far better off if we would abolish the food tax, reduce the business franchise tax, increase the personal exemption from the state income tax from $2,000 to $5,000 per exemption to exempt income up to the federal poverty level from taxation, and index for inflation the personal exemption & marginal rates of the state income tax (which were last adjusted in 1987). Maybe--just maybe--the folks in the legislative leadership could allow bills that have been introduced by several Republican legislators to implement the comprehensive reform of the state's tax code proposed by Governor Underwood's Commission on Fair Taxation, to see the light of day. This year's versions of that bill were SB 188 (Weeks & Yoder) and HB 2445 (Sumner, Sobonya, Wakim, Frich, Schoen & Ellem).

Produce More Oil

Our only escape from sky-high gas prices in the future is to resolve the supply-demand imbalance by increase supply. Not only has the share of domestic consumption of imported oil doubled in the last 30 years, but our foreign sources are now being strained by increased demand from India and China.

Several promising domestic oilfields' development is prohibited by federal law. The tree huggers, assisted by the Senate's filibuster rule, have blocked drilling for oil in Alaska's Arctic National Wildlife Refuge--even though 75% of Alaskans support it and current technology would require a area the size of a major metropolitan airport to drill for oil in an area the size of the state of South Carolina. The area proposed for drilling is not the pristine fields of green depicted (which are located in areas of ANWR far away from the drilling sites) by the left but a barren wasteland. Even the Bush Administration has caved to factually unfounded opposition to drilling offshore in Florida, California, the east coast, and the Great Lakes. Most oil rigs wouldn't be visible from the shore and don't pose an appreciable risk of environmental disaster even when hit by a Category 5 hurricane. As a frequent Florida Gulf Coast vacationer, I have no objection to drilling for oil there or any other place where it can be found and extracted without creating real environmental harm.

We also need new refineries and pipelines. Despite the President releasing oil from the Strategic Petroleum Reserve, we still face a massive loss of refineries in Louisiana and need additional refining capacity elsewhere to reduce the risks associated with the concentration of refineries in one area. Moreover, increased oil production will be of little use if we cannot convert crude oil into gasoline, diesel, jet fuel, kerosene, etc.

One of the responsibilities of being the party in power in Washington is facing the fallout of any crisis that grips the nation. Republicans in the Senate (since the House of Representatives is already on board) must grow a spine and return anti-drilling senators like McCain & DeWine to the reservation. We either must enact our program to increase production, cave to the leftists and impose the failed policies of the 1970s again, or do nothing and risk the fallout from doing nothing.

Monday, August 29, 2005

Manchin Seeks to Prevent Food Tax Bill from Being Amended, May Violate Separation of Powers

Charleston Gazette columnist Phil Kabler reports in his weekly column today that Governor Joe Manchin is considering how to formulate the wording of his proclamation convening the Legislature in special session next month to place a reduction in the state's food tax on the agenda but prohibit any amendment to the bill providing for a reduction greater than the 1% he supports.

Under Article VII, ยง7 of the state Constitution, when the governor calls a special session of the Legislature, the Legislature "shall enter upon no business except that stated in the proclamation by which it was called together." Historically, special session calls have referred to general subject matters for the Legislature to consider.

If the governor, as reported, formulates his proclamation in a manner that effectively restricts the Legislature to either approving or rejecting without amendment a bill to reduce the food tax rate from 6% to 5%, we risk an unprecedented encroachment upon the constitutional separation of powers by the governor, whose hand is already very strong regarding special legislative sessions. Already, when the Legislature is convened in special session, it faces strong public pressure to act as soon as possible (most special sessions are now less than one week) by a constituency that has maintained a strong preference for a part-time Legislature comprised of citizen-legislators who spend only 2-3 months per year engaging in legislative business. Indeed, Governor Manchin convened a special session immediately after taking office in January in which he secured passage of Worker's Compensation privatization legislation and a proposed constitutional amendment (which was rejected in a special election in June) to bond the state's pension debts.

Normally, when the Legislature considers a bill, it is in order for any member, whether in committee or on the floor, to propose any amendment to the bill that is germane to the bill's subject matter. In the case of a bill reducing the sales tax on groceries, an amendment to increase or decrease the tax cut or completely repeal the tax in question would be in order. When a question is in order, it merely means that the committee or house may consider the question and vote on whether to approve or reject the proposition. With regard to the food tax, all Republicans are prepared to support an immediate, 100% repeal of the food tax and believe there are more than enough Democratic votes in both houses for our side to prevail.

Obviously, Governor Manchin does not want to fully repeal the food tax, at least not yet, and also knows that without the restriction he is contemplating attaching to the proclamation calling next month's special session, a full and immediate food tax repeal will pass. I suspect Manchin wants the political benefits that come from cutting the food tax and wants to repeat the process several more times, perhaps culminating with a final repeal of the food tax just before the 2008 election. He could always veto the bill if it was amended to include a full food tax repeal but he knows doing so might be the equivalent of signing his own political death warrant just less than a year after winning 64% of the vote and more votes than any other person on the statewide ballot last year. Moreover, as House Speaker Bob Kiss said, if we Republicans repeal the food tax, we will continue proposing additional tax cuts to relieve the burdens faced by the people of West Virginia and promote real private-sector economic growth.