The Fair 55 Tax Reform Plan (Part 1)

Michael Caryl, Tax Lawyer

Preface To The Fair 55 Tax Reform Plan – By Michael Caryl

A number of smaller states, particularly the author’s home state of West Virginia, face serious budgetary challenges as a result of two conditions: (1) obsolete and unreliable revenue systems which discourage growth-creating investment and (2) excessive per capita state and local government spending.  The Fair 55 Tax Reform Plan (“the Plan”) was inspired and built upon West Virginia’s Fair Tax Plan of 1999, and is designed to comprehensively address those adverse conditions.

Specifically, under the Plan, current income taxes and taxes on all tangible personal property would be replaced with broad-based individual and enterprise consumption taxes. Thus, the Plan calls for a tax system that combines the self-assessing simplicity and administrative efficiencies, inherent in a consumption tax, with features that: (a) fully mitigate such a tax’s regressive impact when applied to low-income citizens’ purchases of life necessities, (b) effectively address the threat of border and e-commerce competition for retail sales and (c) neutralize competitive disadvantages said to occur by taxing business inputs.  

To responsibly phase-in the Fair Tax Reform Plan proposed, it is necessary to first confirm, by dynamic scoring, the adequacy of its revenue-generating capacity. Then, the separate debate, over the proper size and structure of government, can proceed unencumbered by the obsolete and unreliable revenue systems on which government units in West Virginia and elsewhere now uneasily depend for funding.


By the early 1960s, West Virginia’s overall economy had so declined that some commentators described much of the state as an “island of poverty in a sea of US prosperity.” There were, doubtless, many causes for these lamentable circumstances, but, certainly, among them were the, at least obsolete and often ill-advised, public policies pursued and imposed by the highly-centralized State government. Chief among such self-defeating policies was the State’s tax structure. Prior studies of that structure have unanimously concluded that it is and has been: unfair, designed to punish capital investment, too complex, too reliant on many narrow-based special taxes, burdened by a mushrooming array of special preferences designed to pick winners and losers, unfair to the working poor, too centralized, inflexible and opaque in its operation and uncompetitive in today’s global economy.1

Thus, comprehensive reform of West Virginia’s state and local tax structure must be a major aspect of a multi-faceted effort to revive the State’s moribund economy. To that end, it is proposed that major components of that structure, including the taxes on currently earned income and tangible personal property, be replaced by two simple, broad-based consumption taxes which embody all the elements of an ideal tax system. Specifically, the two replacement taxes will not only be broad-based, but they will have low rates and will be: fair, simple in compliance and

administration, stable as to revenue yield, transparent and predictable in their application to taxpayers, neutral as to economic resource allocation and fully adequate to generate revenues sufficient to fund necessary government programs.

This proposal is being offered in full awareness of, and regard for, the State’s current severe budget shortfall challenges. Thus, as was explained to the Legislature’s Joint Select Committee on Tax Reform, at its meeting on September 20, 2016, by Jared Walczak, policy analyst of the highly respected Tax Foundation, “[s]ales tax reform is not only possible during a budget shortfall – it can help solve the problem.”2

Indeed, as a comprehensive restructuring of the State’s entire tax structure, The Fair 55 Tax Reform Plan© represents one of the key components of a broader plan, to put its fiscal house in order, which involves more than just the revenue side of the budget equation. Specifically, as explained in Sections B. and J. of The Case for the Plan, etc. infra, by establishing a far more accountable, stable and efficient revenue system at all levels, the context is provided through which the State can also meaningfully and responsibly address the concomitant expenditure policy issues.

Further, the Fair 55 Tax Reform Plan© also calls for a broad devolution of taxing authority, spending responsibility and public decision-making, from the State to local elected officials and voters. This second aspect of the proposal is designed to avoid any fiscal dislocation which might, otherwise, accompany such a shift, and, instead, it actively promotes voluntary, local inter-governmental cooperation in, and even consolidation of, programs providing both public services and infrastructure. Thus, certain major taxing and spending decisions will be returned to the levels of government more responsive to the people, instead of leaving it in the hands of the special interests which naturally prefer the one-stop legislative and administrative lobbying that now just takes place at the State Capitol.3

Thus, the proposal also calls for an amendment to West Virginia’s Constitution which will not only seek the voters’ consent to implement the broad tax structure reforms, but will provide a degree of fiscal discipline previously unknown to any state in this nation.

1. E.g. “Recommendations to the Governor” by GCFT, December, 1999

2. Ironically, a week after Mr. Walczak’s presentation, and on the same day that The Tax Foundation upgraded West Virginia’s business tax climate to 18th best in the nation, a second municipal bond rating agency, Fitch’s, downgraded the State’s bond rating from AA+ to AA, citing, among other things, its narrow-based tax system, specifically, its over- reliance on natural resource production taxes. The Charleston Gazette-Mail, 9/28/2016.

3. Indeed, the inspiration for the reference to “55” in the name of the Fair 55 Tax Reform Plan© is to evoke the need for greater fairness, not only to the governments of our state’s fifty-five counties (and the municipalities within them), but to the particular voters they each specifically serve.

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