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.

Groundhog Day, WV style

In Bill Murray’s classic movie, “Groundhog Day,” the main character winds up having to live through the same day over and over.

West Virginia’s ongoing budget crisis and standoff is starting to remind me of that ... minus the personal growth, romance and happy ending.

The twisted path to our current mess goes back several years, beginning with hundreds of millions of dollars in tax cuts first enacted around 10 years ago. We were told that the business tax cuts “would pay for themselves,” something which has never happened anywhere.

They didn’t.

We were also told the cuts would lead to the creation of many new jobs.

They didn’t.

We have several thousand fewer private sector jobs in the state now than 10 years ago.

Take those ingredients, shake, and throw in market-driven declines in the coal and gas industries, and that’s the recipe for how we got here.

Over the past several years, around $600 million has been cut from the state budget, including higher-education spending, which has declined in absolute and relative terms. There’s not a lot of fat left to trim. Further cuts would likely harm kids, college students of all ages, seniors, veterans and working people, not to mention everyone else.

Many of the current crop of legislators are opposed to tax increases to make up the difference. Last year, the budget controversy nearly led to a partial state shutdown. And things aren’t all that rosy this year.

One idea for a resolution to this problem is a “compromise” proposal supported by the Senate and Gov. Jim Justice, all for the best of reasons.

On the positive side, the compromise would avoid the possibility of a partial shutdown and would provide a temporary increase in revenue.

On the downside, proposed cuts to the state income tax would cost the state more over time than any increases in revenue from consumption taxes.

This would mean an ongoing budget crisis every year, with more and more painful cuts to things we need, like schools, higher and vocation education, public safety, health care, etc.

That would be the bad “Groundhog Day” part.

On top of that, the kinds of taxes that would increase are regressive, meaning they would hit people with low incomes hardest. Those with higher incomes would get a big break, since income taxes are progressive, in that they are the only state tax actually based on ability to pay: The rate goes up a bit as income grows.

It’s been argued that this shift from income to consumption taxes would be the biggest tax cut for the rich in West Virginia history, which is saying something.

Think Robin Hood in reverse.

There is a better way. A number of citizen groups, as well as political leaders, have proposed a simple solution to the mess that would avoid cuts to education, public broadcasting, higher ed, the Promise Scholarship, health and human services, etc. It would avert a shutdown. It would not blow a huge hole into future state budgets. It would also avoid the “Groundhog Day” effect of repeated annual crises.

The proposal:

1. A modest increase in the sales tax from 6 percent to 6.5 percent.

2. Expand sales taxes to cover services and industries that have so far avoided taxation.

3. Enact a fair-share tax of 1 percent on incomes over $200,000.

4. Offset the impact of higher sales taxes on low income families by enacting a 5 percent Earned Income Tax Credit.

Taken together, these measures would provide around $270 million in revenue.

It’s not a silver bullet, but it could point the way to a fair solution, or at least shift the conversation to a more productive direction.

If we don’t come up with a better solution, on the order of this one, West Virginia is likely to share the fate of Kansas, where ill-advised tax cuts once again failed to deliver and left things in shambles.

In baseball, that would be called an unforced error.

You could also call it a series of really bad Groundhog Days.

(Note: this appeared in today's Charleston Gazette-Mail.)

A taxing question

The latest Front Porch program/podcast is about the proposal by the majority in the WV senate to replace the state's relatively progressive income tax with a regressive consumption tax. It's no surprise that I'm against it, for reasons mentioned on the podcast. I was pleased to learn, however, that my conservative counterpart on the program doesn't think it's a great idea either. You can get down in the weeds here.

Meanwhile, if you haven't already, click on Protect WV and sign up for alerts on the state's ongoing budget battles. Drastic cuts would adversely impact the quality of life for all West Virginians. We're talking jobs, roads, education and school services, higher ed, vocational training and workforce development, programs for kids and seniors, state parks, natural resources, and all the rest.

 Here's the action page. And, while we're at it, here's a budget calculator where you can come up with your own solution to balance the state budget.

This tax and budget stuff is a huge issue and one that could have as significant impact on our state as actions at the federal level.