CHARLESTON, W.Va. - Congressional delays in resolving the so-called "fiscal cliff" could have a significant impact on state revenue flow early next year, a senior state official said Wednesday.
President Barack Obama and Congressional leaders are expected to cut some type of deal over the next month to avert nearly $600 billion in automatic tax increases and spending cuts scheduled to go into effect on Jan. 1.
The automatic, across-the-board spending cuts were a part of a 2011 deal to raise the nation's debt ceiling. The tax increases come from the scheduled expiration of the 2 percent payroll tax cut and other tax cuts passed under former President George W. Bush.
While the federal government continues to rack up more than $1 trillion in annual deficits, the White House and congressional Republicans have been in a stalemate over the best way to cut the deficit without damaging the nation's fragile economy.
The stalemate has created a tremendous amount of uncertainty over future tax policy. State Deputy Revenue Secretary Mark Muchow said if that uncertainty isn't over soon, it could have an effect on state revenue collections early next year.
He said many taxpayers likely would need extra time to digest the status of tax rates and potential deductions and credits that apply to them, leading to delays in tax return filings next year.
"If a final package is not enacted by the end of November or very early December, I would expect possible filing delays associated with the last-minute tax changes," Muchow said.
The state has gone through this before.
In 2010, Congress waited until mid-December to pass a two-year extension of tax cuts and other tax credits designed to stimulate the economy. As a result, the Internal Revenue Service asked taxpayers to delay filing returns until mid- to late February to give the agency more time to reprogram computers and account for changes.
This had a ripple effect on the state.
In January 2011, West Virginia's general revenue fund drew an $81.6 million surplus. A good portion of the surplus was due to the fact that the state had not paid out as many tax refunds as it did in prior years.
Because many people delayed filing tax returns, the state paid out only about $6.7 million in tax refunds for the month - well below the $34.5 million predicted.
But the state suffered a $1.8 million revenue shortfall the following month when the effect reversed itself.
As taxpayers finally started filing their returns, the state began paying more refunds than had been expected during the month.
As a result, personal income tax revenue was $16.5 million below estimates. The state also ended up paying more in corporate tax refunds for the month than it collected, leading to a $15.8 million corporate tax deficit for the month.
Muchow said he expected a similar scenario to play out if national leaders wait until December to pass a solution this year.