Climate Change - How important is the Tax Foundation's State Business Tax Climate Index?

Sean O'Leary — Thu, 16 Feb 2012 22:12:36 GMT

Last month the Tax Foundation released the 2012 edition of their State Business Tax Climate Index, a measure of how business-friendly a state's tax system is. The overall index is comprised of 5 sub-indexes, measuring the "business-friendliness" of a state's corporate income, individual income, sales, property, and unemployment insurance taxes. This year, West Virginia ranked 23rd, with an overall score of 5.19 (higher scores being better business). (Interesting side note, despite the "job-killing" rhetoric around West Virginia's business personal property tax and the $300 million tax incentives to counteract it, according to the Tax Foundation, West Virginia's property taxes are more business friendly than both Ohio's and Pennsylvania's.)

I've looked at these business tax climate rankings before, and suggested that a good business tax climate doesn't necessarily lead to a good economy. This time I'll take a closer look at the Tax Foundation's scores to see how much they really do matter.

Getting the Story Right: Mineral Taxation in Wyoming and West Virginia

Ted Boettner — Tue, 14 Feb 2012 18:44:14 GMT

Last week, I was asked to present before the Senate Economic Development Committee on our projected estimates regarding S.B. 182 - which creates the WV Future Fund proposed by Senate President Jeff Kessler.

During the meeting, Mark Muchow, the Deputy Secretary of the WV Department of Revenue, also presented the committee with a history of the WV severance tax. At the end of his presentation, Muchow also compared the mining (oil, natural gas, and coal) gross domestic product of Wyoming and West Virginia, showing that Wyoming's natural resource economy was about twice the size of West Virginia. In response to questions about the taxation of minerals in Wyoming and West Virginia, Muchow also told legislators that West Virginia taxes mineral property while Wyoming does not.

After doing a little research after the meeting, I discovered that Muchow failed to mention that Wyoming does levy a county gross products tax based on the taxable value of minerals produced in the county.

Extending Payroll Tax Cut and Unemployment Benefits Thousands of West Virginians

Sean O'Leary — Wed, 25 Jan 2012 18:26:00 GMT

Marcellus revenues already offsetting business tax cuts

Sean O'Leary — Wed, 11 Jan 2012 19:58:00 GMT

We've brought up creating some sort of trust fund with the state's severance tax revenue time and time again, so it was good to read about state Republican legislators talking about a severance tax fund in the Gazette this morning. However, it was disappointing to see that their proposal was to use a severance tax fund to finance business tax cuts, rather than building a permanent source of sustainable wealth.

The proposal would take a portion of the revenue generated by the severance tax on natural gas and place it into a "tax reduction fund." The tax reduction fund would be used to offset the loss in revenue for local governments and schools from the proposal's major goal - the elimination of the business personal property tax. The idea being that increases in severance tax revenue from the development of the Marcellus Shale can be used to offset the tax cut.

Inequality Driven by Growing Shift Toward Capital Income

Sean O'Leary — Fri, 06 Jan 2012 14:41:51 GMT

When we last talked about growing income inequality, the CBO had released a report showing that incomes for the richest households in the U.S. have been growing much faster than the incomes of the poor and middle class. Another study, this time from the Congressional Research Service (CRS), has confirmed that income inequality is on the rise in the U.S.

The CRS report looked at after tax income from 1996 to 2006, and the findings echoed the CBO report.

Business Tax Cuts - No Free Lunch

Ted Boettner — Mon, 02 Jan 2012 18:30:48 GMT

While the state should be doing all that it can to stimulate economic growth and jobs, cutting business taxes is an inefficient, regressive, and poor choice for creating broadly shared prosperity. As Sean has pointed out, they are much better ways to accomplish this goal.

As AP points out today, the corporate net income tax will fall to 7.75% this year and the business franchise tax will be eliminated by 2015 (see chart below).

In terms of inefficiency, the business tax reductions will likely offer little in terms of creating new jobs or in enticing new businesses to locate in the state. Also, there is no guarantee that business (mostly large out of state businesses pay corporate taxes) will reinvest that money or hire people in West Virginia.

Does West Virginia Invest Enough in Higher Education?

Ted Boettner — Thu, 22 Dec 2011 19:34:31 GMT

Government Played Critical Role in Shale Gas Boom

Ted Boettner — Wed, 21 Dec 2011 02:31:00 GMT

Today, the Washington Post had a insightful op-ed highlighting the large and critical role federal spending played in the boom in shale gas drilling:

Many often point to the shale gas revolution as evidence that the private sector, in response to market forces, is better than government bureaucrats at picking technological winners. It’s a compelling story, one that pits inventive entrepreneurs against slow-moving technocrats and self-dealing politicians.

The problem is, it isn’t true.

The breakthroughs that revolutionized the natural gas industry — massive hydraulic fracturing, new mapping tools and horizontal drilling — were made possible by the government agencies that critics insist are incapable of investing wisely in new technology.

Will the business personal property tax deter a cracker plant?

Sean O'Leary — Mon, 19 Dec 2011 21:08:49 GMT

Today's Daily Mail had an article about a proposed tax incentive designed to lure a potential "ethane cracker" to West Virginia. The proposal would reduced the assessment rate for property taxes from 60% to 5% for the cracker facility. This would dramatically lower the facility's property tax burden, to the tune of about $500 million over the next 25 years.

So why does West Virginia need such a large tax incentive encourage a cracker facility to come here?

OPEB Cap Costs Public Employees $5 billion

Ted Boettner — Mon, 19 Dec 2011 21:02:01 GMT

In his column this morning Phil Kabler briefly noted that the result of capping the state's contribution to retiree health insurance was "that the burden was shifted onto current and future retirees." This is something I wrote about last week, so it was nice to see this basic point acknowledged in print. Another point that has been absent from the debate on OPEB is how much in compensation public employees will lose because of PEIA's decision to cap the retiree subsidy provided by the state.

The chart below provides some estimates.

In FY 2011, the state is estimated to pay approximately 67 percent or $148 million of total retiree health care costs, while retirees will pay about 33 percent or $72 million.

Solving the OPEB problem is in reach

Ted Boettner — Wed, 07 Dec 2011 22:58:58 GMT

Last night the Charleston Area Alliance hosted a discussion between Senator Brooks McCabe, PEIA director Ted Cheatham, and yours truly on how to address the state's growing OPEB (other-post employment benefits) liability. As readers may know, we published a lengthy report on how the state should handle this problem back in January. I do not have much more to add to the discussion that was not in our report, but uploaded here are some of my notes from the event.

One thing that I stressed at the event was that the state should not overreact to the OPEB liability by completely per-funding it.

State Infrastructure Policy to Put Workers Back to Work

Ted Boettner — Fri, 18 Nov 2011 12:26:00 GMT

As many readers may know, we've been pushing the idea that one of the best ways our state could create jobs today would be to issue bonds for much needed investments in infrastructure and schools. This idea is not new. If fact, other states have already implemented this policy as way to boost job creation and save money over the long-term. Writing in Bloomburg Yesterday, policy guru Ezra Klein makes a solid case for increasing federal spending on infrastructure that applies equally at the state-level.

Do Regulations Kill Jobs? Bureau of Labor Statistics Says No

Ted Boettner — Mon, 14 Nov 2011 15:48:51 GMT

The Washington Post had an interesting article yesterday highlighting that business demand is the number one reason for job layoffs, not regulations.

"In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand."

Economists also do not find a casual link:

“Based on the available literature, there’s not much evidence that EPA regulations are causing major job losses or major job gains,” said Richard Morgenstern, a senior fellow at the nonpartisan think tank Resources for the Future who worked at the EPA starting under the Reagan administration and continuing into President Bill Clinton’s first term.

A decade ago, in a landmark study, Morgenstern and others looked at the effect of regulations on four heavily polluting industries — pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills — between 1979 and 1991.

The researchers concluded that higher spending to comply with environment rules does not cause “a significant change” in industry employment.

West Virginia's Economic Outlook

Sean O'Leary — Wed, 09 Nov 2011 21:57:15 GMT

Yesterday, WVU's Bureau of Business and Economic Research hosted its annual West Virginia Economic Outlook Conference. Both the Gazette and Daily Mail had good coverage of the event, where economists from WVU and the Federal Reserve Bank of Richmond predicted both the U.S. economy and West Virginia's economy would grow over the next few years, but at at fairly slow pace.

Below is the employment forecast for West Virginia from the West Virginia Economic Outlook 2012, which was distributed at the conference, as well as historical employment numbers.

Income Inequality in West Virginia in One Graph

Ted Boettner — Fri, 04 Nov 2011 22:19:39 GMT

Earlier today Sean pointed out the growing income inequality in the U.S. What I would like to do is touch on how this has played out in the Mountain State.

The graph below tells the story. From 1974 to 1977, growth in median (four-person) household incomes - or the households in the middle of the income distribution - grew at about the same rate as per capita or average incomes.

Friday Roundup: All about inequality

Sean O'Leary — Fri, 04 Nov 2011 20:07:56 GMT

Growing income inequality was the topic of the week as the CBO released a new report showing the incomes of the wealthiest 1% have tripled since 1979, with little to show for everyone else.

Highlights include:

Between 1979 and 2007, income grew by:

275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent, and
18 percent for the bottom 20 percent.

And:

The share of income going to higher-income households rose, while the share going to lower-income households fell.

The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.

Great Video by WV Kids Count

Ted Boettner — Thu, 27 Oct 2011 18:22:41 GMT

Tax and They Will Come

Ted Boettner — Wed, 26 Oct 2011 16:34:23 GMT

Richard Caldwell, a Wheeling native and the vice president for the Appalachian region of Audubon Engineering, said Charleston was chosen because of the availability of skilled and experienced workers. Availability of the Marcellus Shale natural gas reserve also was a contributing factor in the decision to come to West Virginia, he said.

Last week, we issued a policy memo highlighting the lack of empirical evidence in the Marshall University study that concluded that state and local taxes rates are a significant factor in business location decisions. The news that Audubon Engineering, a natural gas and oil consulting firm, is locating in Charleston confirms why the "don't tax and they will come" argument is largely baseless.

Monday Morning Catch Up: Natural Gas, Small Businesses, and State Budget Transparency

Ted Boettner — Mon, 24 Oct 2011 14:09:21 GMT

On Sunday, the NYTimes ran an insightful and well written op-ed by Seamus McGraw on his regrets of leasing his Pennsylvania land to a natural gas company. McGraw, who is the author of 'The End of Country", summed up his thoughts here:

Standing there in what used to be our pasture on that light summer night, watching as the machinery of progress blasted the rock a mile beneath my feet, I realized that was what scared me the most. Not that this was inevitable, but that its impact depended so much on me, on whether I had the character to come out from behind the convenient shield of “are you for it or against it” ideology and find the strength, the will and the means to do what I can to make sure this is done in the best way possible.

I still don’t really know the answer.

Marshall Gas Tax Study Proves Virtually Nothing

Sean O'Leary — Tue, 18 Oct 2011 20:21:49 GMT

Today's Daily Mail reports on a study from the Marshall University Center for Business and Economic Research, warning that West Virginia's high tax burden on the natural gas industry could hurt the development of the natural gas industry. Reading carefully, one may notice a lot of "maybes" "mights" and "coulds" in the report's conclusions. Let's take a closer look, and see if there is another point of view.

First off, the study's author, Dr.

blog.wvpolicy.org