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After a contentious budgeting process, West Virginia lawmakers brought their 17-day special session to a close last week after agreeing on a budget bill, SB 1013. That legislation, along with a separate bill that increases tobacco taxes, has since been signed by the Governor. This resolution follows the budget impasse that ended the Mountain State’s regular session and a special session called to address the $270 million shortfall.
While these steps helped avoid a potential government shut-down and will raise a projected $98 million a year in much-needed revenue, the state’s budget woes are far from over. Rather, West Virginia joins a number of other states across the country that have used this legislative session (and election year) to punt on resolving their fiscal problems. The budget bill’s heavy reliance on budget cuts, tobacco tax increases, and one-time funds, including a $70 million withdrawal from the state’s Rainy Day Fund, are not long-term, sustainable solutions–leaving much work to be done in 2017 when lawmakers will face the possibility of a $300 million revenue hole.
This budget is the second to make it out of the Legislature. The first, which did not include any tax increases, was vetoed by Gov. Earl Ray Tomblin earlier this month. Revenue-raising proposals to apply the sales tax to telecommunications services and to increase the state’s sales tax rate on either a temporary or permanent basis fell short.
Tobacco tax increases–the result of much turmoil–were the sole source of revenue to make it through both the House of Delegates and the Senate. After much debate over the magnitude and scope of the increases, SB 1012 resulted in an estimated $98 million tax increase on cigarettes, e-cigarettes, and other tobacco products. West Virginia’s cigarette tax will increase by $0.65, bringing the tax up to $1.20 from $0.55 per pack, and e-cigarettes and vaping liquids will now be taxed at a rate of 7.5 cents per milliliter.
While the cigarette tax seems to often be seen as the politically feasible option, it is both a regressive and declining source of revenue. So, on average, low- and middle-income families will pay more of their income in these taxes than those with higher incomes. The revenue source will also decline over time due to the steady reduction in smoking rates and the per pack basis of the tax which does not account for inflation-adjustment.
The $270 million budget gap that plagued lawmakers this session was largely the result of ill-advised tax cuts and low energy prices, neither of which seem to be going away anytime soon. Elimination of the state’s business franchise tax took full effect last year, and over the last several years the corporate income tax was reduced as well. To that end, the West Virginia Center on Budget and Policy recently wrote that had the state moved forward with all of Gov. Tomblin’s proposed tax increases, the revenue gain would still be smaller than the revenue loss from past tax cuts. That really drives home the need to either roll back cuts or consider equitable revenue solutions to remedy West Virginia’s structural budget shortfall.
Here’s to hoping that legislators come back fresh next session ready to consider the range of progressive revenue options worthy of consideration.