January 27, 2021

Another bad idea

 Some of West Virginia’s political leaders want to abolish the state income tax. One has even said doing so would help bring 400,000 new people to live in West Virginia.

If memory serves, some of the same people predicted that abolishing the state’s prevailing wage for workers on public building projects would save the state $200 million to $300 million a year.

That didn’t happen. In fact, a study released in 2019, albeit from a pro-labor source, found it lowered wages for construction workers, worsened workplace safety and substantially reduced the number of young people in apprentice programs that would set them on a path to lifetime economic security. There wasn’t evidence of savings for the state either.

I think the latest prophecy might meet a similar fate.

The state’s income tax brings in almost $2 billion per year, or over 40% of West Virginia’s basic budget. Most of that goes to K-12 education; health and human services for seniors, children, and working families; post-secondary education; and things like public safety, libraries, parks, natural resources and other public goods.

It’s also the only progressive tax in the state, meaning that those with higher earnings pay a somewhat higher rate. Otherwise, West Virginia’s tax system is already upside down, with lower income residents paying a higher share of their income in taxes than the very wealthy due to regressive sales and excise taxes.

The West Virginia Center on Budget and Policy has calculated that the 20% of West Virginians with the lowest income ($15,900 a year or less) pay 9.4% of their income in taxes. The wealthiest 1% (with earnings of $401,600 or more) pay 7.4%.

Adam Smith would not approve. In his justly famous “The Wealth of Nations” (1776), widely regarded as a classic celebration of capitalism, he wrote, “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

If the income tax is phased out, it will be made up for either by increasing regressive taxes that will hit lower income people the hardest or by cutting the services they rely on.

Generally speaking, families and businesses want to locate in places with good schools, a good quality of life and a well-trained workforce.

I’d be surprised if 400,000 new people will want to rush into a state with defunded education and training, a crumbling infrastructure, a degraded environment, a lack of the public goods that make a place desirable and an unhealthy workforce.

I think it’s far more likely eliminating the income tax would only speed up our ongoing exodus.

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