January 30, 2020

Corporate tax cuts or kids and colleges?

Back in 2007, the West Virginia Legislature dramatically changed the state’s tax system, reducing business taxes by hundreds of millions of dollars per year. The package included phasing out the business franchise tax and reducing the corporate net income tax from 9 percent to 6.5 percent. Other cuts and credits would follow.

The annual dollar amount of the cuts, at least $250 million, would have been more than enough to cover the costs of undergraduate tuition for every West Virginian enrolled in state universities, which could have really been a game changer for the state.

Talk about a road not taken.

It was argued at the time that these tax cuts would “pay for themselves,” a scenario about as probable as the belief that if you take gasoline out of your car you can drive it farther. What we did get in that department was an almost annual budget shortfall, including a gap of $27 million this year that had to be made up by one-time transfers from the state Treasurer’s Office.

Usually, budget shortfalls translate into budget cuts.

And the governor’s annual budget report to the Legislature anticipates that the next several years will be even leaner.

This loss of funding has hit higher education particularly hard and raised tuition rates for students. The state spent less per student on higher education in 2018 than it did in 2008.

According to a 2017 report by the West Virginia Center on Budget & Policy, “Since 2008, state spending in higher education has declined by $130 million, adjusting for inflation.” Tuition rates have doubled since the early 2000s, in a state that trails the nation in educational attainment, with all that that implies in terms of lost income and lower workforce participation.

We were also promised at the time that these tax cuts would create jobs, which didn’t happen. According to the Quarterly Census on Employment and Wages, in the 10 years between 2007 and 2017, employment in all industries of all sizes fell from 706,172 to 683,807. The most recent data suggests that, at best, we’re back where we started over 12 years ago.

All of which is to say that the first 10 years of tax cuts brought the state a whole lot of nothing in the way of benefits.

Fast forward to 2020. The Legislature is once again pondering another major round of corporate tax cuts, which leads me to conclude that some people really do want it all.

The latest proposed cuts specifically involve the elimination of the business personal property tax, which covers things like machinery and equipment, tools, fixtures and inventory. There will no doubt be promises that these cuts will pay for themselves and create jobs. Déjà vu all over again.

I’m reminded of Lucy holding the football for Charlie Brown in the Peanuts cartoons.

This alleged “job killing” tax amounts to less than 1 percent of what businesses pay for materials, according to Census data. When you factor in other costs of doing business, such as payroll, energy and capital expenditures, we’re talking about something less than a rounding error. And one peer-reviewed study suggests that eliminating the machinery tax could have the unintended consequence of reducing employment by encouraging automation.

Eliminating this tax would affect state and local governments and particularly hit funding for public schools.

If enacted, these cuts will either mean our schoolchildren and public services take a hit or the lost revenue would be made up by increasing regressive taxes on working families.

It makes a whole lot more sense to invest in our children, workforce and communities.

(This ran as an op-ed in the Charleston Gazette-Mail.)

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