February 08, 2023

Here we go again

 It’s been interesting to watch the debate between Gov. Jim Justice and West Virginia Senate leaders about tax policy for the past few months.

Before the 2022 election, they were at odds over Amendment 2, which went down by a huge margin. It would have given the Legislature the authority to eliminate business equipment taxes, which fund local services. This could have meant a hit of over $500 million to local governments, schools, fire departments, libraries, etc. The main beneficiaries would be out-of-state corporations.

At the time, Justice was quoted as saying, “We’re taking away an income stream and betting on good times forever and putting at risk our schools, our EMS, our firemen, our police and whatever it may be. We have to step back and think about what we are doing.”

He was right.

On the other hand, when Justice proposed a “tsunami” plan to cut state income taxes by over 50% in three years — to the tune of a $1.5 billion cut to the state budget — Senate leaders were skeptical. One called it “phony math.”

(A friend of mine pointed out at the time the plan was unveiled that tsunamis aren’t particularly popular with people who have lived through them.)

According to MetroNews, Senate Finance Committee Chairman Eric Tarr, R-Putnam, said of the governor’s plan, “It’s kind of surprising — surprising and not surprising, because he’s not given a six-year plan. So, either he doesn’t know what the expenditures are on the out years or he doesn’t care — and, apparently, the House doesn’t either, because, before they went through any of their budget hearings to figure out what the needs are in the state going forward, they went and and passed a billion-dollar reduction.”

Tarr’s right, too.

One thing both plans have in common is that they would sacrifice public goods primarily for the benefit of the wealthy. The big winners of Amendment 2 would have been out-of-state corporations. The biggest winners of the “tsunami” would be the richest 20% of West Virginians, who would get around 65% of the income tax cut.

Maybe the real problem isn’t finding the best way give tax breaks to wealthy people or corporations by either method. Maybe the real problem is how to make West Virginia a welcoming place with great schools, vocational and post-secondary education, excellent health care, good infrastructure, beautiful parks and libraries, and adequate funding for natural disasters and other emergencies.

If the goal is to encourage people to move here, a failed state where everything is crumbling to the ground isn’t going to get it.

Supporters of both tax cuts argue that the state is enjoying a huge surplus and can afford to slice away at revenue without negative consequences. However, the surplus, such as it is, is part sugar high and part illusion.

First, the sugar high.

As you might have noticed, the past few years haven’t been exactly normal, between pandemics, political polarization, economic dislocations and international wars and tension.

We’ve been awash with COVID money from the CARES Act and the American Rescue Plan. These are one-time sources of funding. They should be spent for their intended purpose of addressing the hardships caused by the pandemic and its aftershocks.

It’s kind of like winning $1,000 in the lottery and quitting your day job in favor of scratching tickets. Lightning doesn’t strike often in the same place.

Another factor driving the sugar high is a spike in severance taxes. These are notoriously volatile, and fluctuate widely in spirals of boom and bust. The main reason for the spike can be summed up in two words: Russia and Ukraine. Again, not an everyday occurrence.

As Tarr pointed out, there are no realistic and rigorous long-term revenue estimates taking these things into account.

So much for the sugar high. Now, for the illusion.

For the past several years, state revenue estimates have been deliberately low, which makes it seem like a surplus when it turns out higher. It’s kind of like setting a goal of jogging a mile in half an hour and crowing when you shuffle off the finish line in 15 minutes.

Then there is the fact that the state budget has been flat for several years, meaning it has changed very little despite many unmet needs and inflation rates of 7% in 2021 and 6.5% in 2022. This has been a quiet but deep cut before the games have even started.

It also might be good to remember that West Virginia’s last corporate tax cuts promised much but delivered nothing.

Betting our future on one-time unique events and questionable estimates reminds me of Jesus’ parable about the person who built his house upon sand. Let’s just say that didn’t end well either.

There are better ways of spending one-time federal COVID money than corporate welfare or permanent tax cuts for the wealthy.

For example, the Tuesday Morning Group, the West Virginia NAACP and others have proposed spending $300 million — a mere fraction of federal ARPA money — to be invested in West Virginia’s neediest communities in projects that improve workforce participation, housing, health, education outcomes and social services.

As for the spike in severance tax revenue, that money might best be spent on the unmet needs of the coal- and gas-producing communities from which it came.

Again, it’s a question of priorities.

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