CHARLESTON, W.Va. (AP) - West Virginia appears largely insulated from near-term program cuts if 2013 arrives without a new agreement on federal revenues and spending, but many of its taxpayers will take an immediate hit if President Barack Obama and Congress fail to avoid the so-called fiscal cliff, state officials said.
Negotiations continue in Washington to avert automatic tax increases and spending cuts set to begin in January. The hikes would reflect the expiring of lower income tax rates enacted at the behest of then-President George W. Bush. Each tax bracket would see its rate rise by between 3 percent and 5 percent. The back-and-forth discussions have included whether to extend all or just some of these Bush-era cuts, state Deputy Revenue Secretary Mark Muchow said.
If rates were to rise for only individual income exceeding $200,000 and family income over $250,000, for instance, around 11,200 West Virginia households or single filers would face a higher tax bill, according to U.S. Internal Revenue Service statistics. Filers in that income range account for 1.4 percent of federal tax returns by West Virginians.
But all wage-earners should expect to start paying more toward Social Security, even if the fiscal cliff is avoided. Muchow said support appears to be building around ending a temporary payroll tax reduction, which would increase its rate by another 2 percent of income. Roughly speaking, that hike would cost West Virginians earning $35,000 annually another $700 a year or around $13.50 a week.
"That's probably one of the changes that we can count on happening," Muchow said. "That will lower disposable personal income, and will have an effect on consumer spending."
A $1,000-per-child tax credit might also be cut in half, while a standard deduction level for married couples may shrink, Muchow said. But he said a more vexing option involves the way higher income taxes can be levied against filers who seek multiple deductions, credits and other tax preferences, Muchow said. Congress has routinely blocked this alternative minimum tax with a legislative patch, but may fail to for 2013 if the impasse continues, he said.
Around 10,120 West Virginia filers were subject to the alternative minimum tax in 2010, Muchow said. Their ranks could surge to between 50,000 and 70,000 households, he estimated.
"It's a paperwork nightmare as well as the possibility that you'll be paying higher taxes," Muchow said. "History indicates that a patch will be created, it's just a matter of when. ... I believe any deal that emerges will include a patch. It's just whether a deal will emerge before Jan. 1 or after."
The automatic spending cuts would total $1.2 trillion over nine years, but state Budget Director Mike McKown noted that two key areas for West Virginia - Medicaid and highway-related funding - aren't included.