Frying pan to fire with latest tax plan

This week, the West Virginia House of Delegates will vote on House Bill 3300, its version of repealing the state income tax. It’s quite a bit different from Gov. Jim Justice’s proposal.

While I have serious concerns about Justice’s plan, as I’ve written here more than once, I think the House version would do even more damage over the long run. The governor’s plan would at least try to balance some of the cuts with some revenue increases, even if some of these are regressive and unpopular, in an effort to preserve some programs and services.

The House version is all cuts, all the time. Basically, it would cut personal income taxes by $150 million per year over several years until it’s gone, with no effort to make up lost revenue.

This would come on top of untold millions of dollars taken from the K-12 education budget to pay for new legislation defunding public schools to pay for education savings accounts.

In 2021, the state’s base budget, made up of general revenue and lottery funds, is about $5 billion. Of that, more than $2 billion, or about 43%, comes from income taxes. Seven years out, and we’d be out over $1 billion. It gets worse from there.

The income tax is West Virginia’s only progressive tax, meaning that those with higher incomes pay a somewhat higher rate. If eliminated, more than 60% of the benefits would go to the richest 20% of residents. The pain would go to everyone else, from young children to students to workers to retirees.

This becomes clear when we consider where our tax dollars go as things stand now. Over 40% goes to public education. Nearly 25% goes to health and human resources, which provides health care and other benefits to hundreds of thousands of West Virginians, including many seniors, children and people with disabilities. About 10% goes to higher education.

What’s left covers everything from public safety to parks and natural resources to outdoor recreation/wildlife management to environmental protection to economic development to courts.

House leaders recognized, in a memo circulated to delegates earlier in the session, that an income tax repeal would have painful consequences. Specifically, the memo noted: “Such a plan will require measures that are not politically popular standing alone.”

Among the possibilities listed in the memo were across-the-board cuts to “public ed, higher ed, DHHR. This would necessarily involve a real reduction in at least some services;” “Reduction in Higher Education funding including funding to specific schools;” eliminating “all state appropriations to WVU and Marshall;” and “reduction or elimination of promise scholarship.”

Those possibilities were listed about the governor’s plan, which replaced some lost revenue. Cuts under the House plan would be even more drastic.

Contrary to a common belief, tax cuts don’t “pay for themselves,” as West Virginia’s experience has shown with the hundreds of millions in corporate cuts from reforms enacted in 2007.

We’re not an outlier in that respect. A study of tax cuts for the wealthy by the London School of Economics of 18 countries over 50 years found that “such reforms do not have any significant effect on economic growth and unemployment.”

The main things they increase are inequality and the wealth of a few at the expense of the majority. And an abundance of public health research has found that growing inequality makes other social problems worse, whether we’re talking health, crime, social trust or the lack thereof, addiction and general well-being.

Low- or no-income taxes don’t count for much, if you’re living in a wasteland.

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

Hands up

One argument often made in defense of slashing programs for low income and working people is that these discourage or "disincentivize" work. However, as Neil Irwin makes clear in this New York Times article, it's often the other way around.

According to Irwin, "Certain social welfare policies, according to an emerging body of research, may actually encourage more people to work and enable them to do so more productively."

For example the Earned Income Tax Credit, a refundable credit for workers with low and moderate (by WV standards), is a huge boon to millions of families. Studies suggest that the EITC encourages workforce participation by rewarding work. One study found that by 1999, 460,000 more women heads of household were working that would have been the case without the EITC.

(There's been an effort in WV for several years to create a state version, but that hasn't happened yet.)

Child care subsidies are another case in point. Costs for this can easily exceed college expenses. And they usually hit families at a time when their earnings haven't peaked. We've had several scrapes in West Virginia aimed at holding the line on these subsidies.

It only makes sense in a state with the lowest workforce participation rates to do what we can to make work affordable.

Research also supports the long term benefit of SNAP (formerly food stamps). A study of the early days of food stamps, a program that was rolled out at different times around. the country, found that those children who received this kind of nutritional support were more likely to be working decades later than those who didn't.

Specifically, a study titled "Long Run Impacts of Childhood Access to the Safety Net" by
Hilary W. Hoynes, Diane Whitmore Schanzenbach  and Douglas Almond concluded that 

access to food stamps in utero and in early childhood leads to significant reductions in metabolic syndrome conditions (obesity, high blood pressure, heart disease, diabetes) in adulthood and, for women, increases in economic self-sufficiency (increases in educational attainment, earnings, income, and decreases in welfare participation).

This is another reason why expanding access to free school breakfasts and lunches to everyone is so important. This is one area in which West Virginia is a national leader.

Another intervention that pays huge dividends is early childhood education. Nobel economics laureate James Heckman assets that "Evidence shows that supplementing the family environments of disadvantaged children with educational resources is an effective and cost-efficient way to provide equal opportunity, achievement, and economic success."

These kinds of investments offer more promise of promoting shared prosperity than the current slash and burn approach to federal and state budgets.

Freedom and chains

"Man is born free; and everywhere he is in chains."

Those are the opening lines of The Social Contract, a very influential work by the 18th century philosopher Jean Jacques Rousseau (1712-1778).

Those words express a long held belief on the political left that attributes our unsavory characteristics--such as greed, lust for power, servility, etc.--to the corrupting influence of society. If that was the case, then presumably a new social environment would yield new and better people.

The radicals of the French Revolution tried to wipe the slate clean and create a republic of virtue. The Terror unleashed on their opponents was seen almost as a salutary public health measure which both educated the people and wiped out decadent aristocrats.

The Revolution at various points wanted not merely to change old laws but to remake the calendar, the system of weights and measures, and even replace the old religion with cults of Reason and the Supreme Being. The year 1789 became Year One; the months were renamed, the seven day week was replaced by "decades" of ten days. Most of those measures, with the exception of the metric system, didn't last too long.

Neither did liberty, equality and fraternity for that matter.

The history of that and other radical revolutions suggests that while society certainly can have a corrupting influence, the human animal has its own evolutionary baggage that may always be an obstacle to perfect social harmony. That doesn't excuse any particular social injustice and isn't an argument for not trying to improve things, as conservatives might argue. But it is something to keep in mind. One must work with the materials at hand.

SPEAKING OF EVOLUTION, a controversy over the origins of altruism is raging these days.

JOB CUTTING CEOS are doing just fine. That's a relief.

ONE IN SIX AMERICANS are relying on anti-poverty programs.

OLD OR NEW? This Gazette editorial argues that the Tea Party is just the latest example of an often repeated pattern.

GOAT ROPE ADVISORY LEVEL: ELEVATED