1. Income Tax Cuts and Shifting to Sales Tax a Poor Strategy for Growing West Virginia’s Economy
Lunch & Learn, 15 February 2017
presented by
Ted Boettner, Executive Director
West Virginia Center on Budget and Policy
@WVCBP
@WVPolicywonk

2. Personal income tax almost half of General Revenue Fund
Sales tax second largest revenue source
31%
$4 Billion
General Revenue Fund
FY 2018
Sales & Use
Tax
Personal
Income Tax
45%
Source: WV State Budget Office

3. Personal income tax is only tax based on the ability to pay
Sales tax is regressive, falling harder on low and middle income families
Personal income tax is only tax based on the ability to pay
Sales taxes as a share of family income
Personal income taxes as a share of family income
Source: Institute on Taxation and Economic Policy, Who Pays?, West Virginia 2015

4. Major personal income tax expenditures (in millions)
Source: WV State Budget Office

5. Biggest income tax cutting states not seeing job boom
Total nonfarm job growth since the tax cuts took effect
Source: WVCBP

6. Biggest income tax cutting states not seeing income growth boom
Total personal income growth since the tax cuts took effect
Source: WVCBP

7. North Carolina underperformed most of its neighboring states
Total private sector job growth since North Carolina tax cuts took effect
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.
Source: WVCBP

8. What’s the Matter with Kansas?
Kansas Credit Rating
Downgraded
3 Times!
Source: Arizona Center for Economic Progress

9. What’s the Matter with Kansas? Part II
Kansas cut taxes on the wealthy, raised them on low-income people
Impact of Kansas Tax Changes Between 2012 and 2015
Source: Institute on Taxation and Economic Policy – 2015 Income Levels
Note: Included personal income tax cuts, Cigarette tax increase (&.79 to $1.29, Sales tax increase from 5.7% to 6.5%

10. There is no academic consensus that income tax cuts boost economic growth
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.
Source: WVCBP

11. States tax and small business growth
A rigorous 2012 study commissioned by the U.S. Small Business Administration and co-authored by John Deskins found “no evidence of an economically significant effect of state tax portfolios on entrepreneurial activity.”
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.
Source: WVCBP

12. Are West Virginians fleeing to states without income taxes? Florida?
Between 1993 and 2015, 403,821 households left W.Va. and 392,313 moved into W.Va.
97.2% of departing households were replaced by new arrivals
84% of households moving from WV to FL
were replaced by new arrivals from FL
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.
Source: Internal Revenue Service

13. States with highest income tax rates experiencing faster economic growth
Per capita real GDP growth from 2005 to 2015 (chained 2009 dollars)
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.
The nine states with the highest top income tax rates also have more Fortune 500 companies, higher median incomes, and a smaller share of residents without health insurance.
Source: BEA

14. Personal income tax is a more stable source of revenue than sales tax
Personal income and sales and use tax revenue growth in W.Va.
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.
Source: WV State Budget Office

15. Replacing Income Tax with Revenue Neutral Sales Tax of 14.4%
Boon for Top 1%, Tax Increase for 80 percent of West Virginia Families
Less than $19k (Lowest 20%)
$19K-$33K (Second 20%)
$33K-$51K (Middle 20%)
$51K-$84K (Next 20%)
$84K-$159K (Next 15%)
$159K-$353k (Next 4%)
$353K or more (Top 1%)
+$465
+$826
+$824
+$34
-$2,039
-$6,311
-$28,383
Households with a tax increase Households with a tax break
Source: Institute on Taxation and Economic Policy

16. Replacing Income Tax with 12.7% Sales Tax w/ broader base
Boon for Top 1%, Tax Increase for 60 percent of West Virginains
Less than $19k (Lowest 20%)
$19K-$33K (Second 20%)
$33K-$51K (Middle 20%)
$51K-$84K (Next 20%)
$84K-$159K (Next 15%)
$159K-$353k (Next 4%)
$353K or more (Top 1%)
+$424
+$747
+$728
-$131
-$2,288
-$6,642
-$29,117
60% households get tax increase Richest 40% of Households get tax break
Broader base would include accounting, personalized fitness, legal services, contracting services, veterinarians, electronic data processing, advertising, engineering, architects, investment counseling, land surveying, computer software, and the sale of digital downloads.
Source: Institute on Taxation and Economic Policy

17. Shifting from income to sales tax would increase business taxes in W
Shifting from income to sales tax would increase business taxes in W.Va.
According to COST, business pay 42% of state/local sales taxes
$3.9 Billion
FY 2015
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.
Source: Ernest & Young, FY 2015 COST Report on State and Local Business Taxes

18. Moving to flat income tax of 5% is a big tax cut for wealthy
Boon for Top 1%, Tax Increase for 80 percent of West Virginains
Less than $19k (Lowest 20%)
$19K-$33K (Second 20%)
$33K-$51K (Middle 20%)
$51K-$84K (Next 20%)
$84K-$159K (Next 15%)
$159K-$353k (Next 4%)
$353K or more (Top 1%)
+$30
+$147
+$247
+$249
-$269
-$1,408
-$7,372
Households with tax increase Households with a tax break
Source: Institute on Taxation and Economic Policy

19. The income tax reform West Virginia needs to grow its economy
Scale back income tax exemptions – Every taxpayer regardless of income receives a $2,000 exemption for each dependent. Phase it out between $150,000-$200,000, and eliminate it for those over $200,000, and it would increase revenue by an estimated $10 million.
Modernize rates and brackets - West Virginia’s personal income tax schedule has not changed since 1987, when the state’s top personal income rate was reduced to 6.5 percent from 13. Since then more middle-income households into higher tax rates. A 3% surcharge on income over $200,000 would yield $96 million.
Create a refundable WV Earned Income Tax Credit (EITC) – 26 states have a state EITC modeled after the federal EITC, which is the most successful anti-poverty poverty program in the nation. A 15% WV EITC would provide an average tax credit of $332 to over 155,000 families in West Virginia and help boost labor force participation, reduce poverty, and led to better health and education outcomes.
None of the five saw the economic growth that was claimed, and in North Carolina the modest growth that did occurs was concentrated to urban areas of Charlotte and Raleigh leaving the rest of the state behind.