Saturday, April 11, 2015

WEST VIRGINIA'S TAX REFORM COMMITTEE CAN STOP THE STATE'S BLEEDING

On Monday a Joint Select Committee on Tax Reform comprised of members of West Virginia’s house and senate will meet to discuss possible changes to the state’s tax code. And, as in years past, it’s likely we’ll hear a great deal about the need to make West Virginia more “business friendly”. Specifically, the committee is expected to take aim at West Virginia’s personal property tax, which applies to business inventory, machinery, and equipment and which is widely criticized for making West Virginia “less competitive” with other states.

But, as has been pointed out by the West Virginia Center on Budget & Policy and others, previous efforts to make West Virginia business taxes more competitive have produced horrible results.

Cuts to the state’s Business Franchise Tax and Corporate Net Profits Tax have drastically reduced the tax burden on businesses reducing their share of total state tax revenues from 12% a decade ago to only about 4% today. Those results are reflected in the Tax Foundation’s annual ranking of business climates in the 50 states. West Virginia, which once ranked 37th, now ranks 21st. But, what has it gotten us?

During the period of West Virginia’s reductions in business taxes the number of West Virginians with jobs has fallen to a low not seen since 1995 and the number of employers in the state has been steadily declining as well. In other words, the strategy of making West Virginia more “business friendly” – or what I have elsewhere called, trying to discount our way to prosperity – hasn’t worked. Indeed, had West Virginia gotten the same results while pursuing what conservatives usually decry as “tax and spend” policies, they would be in a state of uproar proclaiming the policy an abject failure and demanding a change.

In any case, a change is needed. So, what should it be?

Although I have no expectation they will do so, the committee members could begin their deliberations by adopting a guiding principle to help them determine whether proposed measures are likely to reverse the current destructive trend or perpetuate it. The principle is that measures which have the effect of increasing the disposable incomes of West Virginians and of keeping in the state and its economy more of the wealth that’s generated here are good. And, by implication, measures that result in reduced incomes for West Virginians and that drain wealth from the state are bad.

Why should this criterion be applied? Because we have seen the dire effects of policies that drain wealth. Although they’re usually not thought of in this context, those business tax cuts that West Virginia has enacted in recent years and that were supposed to trigger investment and job expansion have instead resulted in the repatriation of hundreds of millions of dollars annually to out-of-state interests. That money is virtually all reinvested elsewhere or paid out in dividends to corporate shareholders who rarely live in West Virginia. That’s what happens when 19 of a state’s 20 largest tax-paying employers – i.e. those that benefit most from the tax breaks – are based in other states. Meanwhile, the tax savings for smaller employers that are based in West Virginia are so tiny, that they are almost never enough to trigger additional hiring.

In fact, taken in their totality West Virginia’s business tax cuts have probably reduced hiring, because in repatriating money to out-of-state entities, they drain that money from West Virginia’s economy thereby reducing local demand for goods and services, which is in the end the only real incentive that local businesses have to expand and hire. If you’re a businessperson and you don’t see additional demand for your product or service, there’s no point in expanding regardless of how low taxes are.

And it’s not only business tax cuts that drain hundreds of millions of dollars annually from West Virginia’s economy. The watering down of incomes by weakening the prevailing wage law and regulatory reforms that reduce compliance costs while increasing risks to workers and communities also export to out-of-state interests wealth that’s created with West Virginia resources by West Virginia workers.

The good news is that the Joint Select Committee on Taxation can do something to stem the deterioration and invigorate West Virginia’s economy in a way that will allow West Virginia residents and communities to participate in the state’s economic growth. They can reform the tax code in a way that reverses the outflow of dollars from West Virginia. It’s not hard to figure out how.

Some taxes, such as business taxes, severance taxes, and, in a state where outsiders own more real estate than residents, even property taxes, are paid primarily by out-of-state entities. Meanwhile, other taxes, such as the personal income tax and sales taxes are paid primarily or almost exclusively by West Virginia residents. So, when assessing which taxes should be increased and which should be decreased, legislators should prioritize for increases those which fall more heavily on out-of-state individuals and businesses and prioritize for decreases those which fall more heavily on West Virginia residents and businesses.

In that way, legislators can craft a tax code that, even without increasing the total tax burden, puts hundreds of millions of dollars annually back into the pockets of West Virginia residents – money they will mostly spend in the state, increasing demand, and giving local businesses that operate here a real incentive to expand.

Friday, April 10, 2015

WEST VIRGINIA IS SO "BUSINESS FRIENDLY" IT'S KILLING US

As usual the folks at the West Virginia Center on Budget & Policy have illustrated more powerfully than I just how badly West Virginia's economic strategy of increasing competitiveness through business tax cuts and reliance on the state's energy industries has failed to produce what Governor Earl Ray Tomblin told us in his 2011 State of The State speech would be a period of "unprecedented growth in jobs and prosperity".

This chart in the April 10, 2015 Budget Beat shows the number of West Virginians with jobs dropped by nearly 40,000 since 2008, a period during which the West Virginia's state business tax ranking improved from 37th among the states to 21st thanks to waves of corporate tax cuts whose only measurable economic effect has been to precipitate a series of state budget deficits, which have been dealt with through hiring freezes, raids on the state's Rainy Day Fund, and cuts to higher education that have resulted in significant tuition increases at West Virginia colleges and universities.

What the WVCBP chart doesn't show is that this deterioration in the state's jobs and and budget picture is happening at a time when the nation as a whole is adding jobs at a rate of over 2 million per year and the state's Gross Domestic Product is among the fastest growing in the nation. In short, it is essential that state leaders realize that for reasons I've described in previous posts, the relationship between overall economic growth and jobs and prosperity for West Virginians has been shattered.

I and others have written at length about policies West Virginia could adopt to enable West Virginians to participate in the state's economic growth and reverse the deterioration in the state's economy, but so far those pleas have elicited little response from political leaders who seem more fixated on West Virginia's business climate ranking than they are on actually creating jobs and prosperity for West Virginians. Perhaps with the continuing onslaught of dismal economic numbers the state legislature will begin to take notice when the newly formed Joint Committee on Tax Reform meets this coming Monday.

Monday, April 6, 2015

WEST VIRGINIA DEMOCRATS: NO DIRECTION HOME

Last week, Belinda Biafore, newly named chairwoman of West Virginia’s Democratic Party, participated in a wide-ranging interview with reporters and editors of the Charleston Gazette in which she was asked about lessons learned from last fall's election debacle and the party's direction going forward. Democrats hoping for the ascent of a phoenix can put away their binoculars.

A transcript of the interview has been published and in it Biafore fails to identify a single policy or position that West Virginia Democrats should reconsider, much less change. More worryingly, she proves unable to articulate any semblance of a Democratic narrative that would save West Virginia from its ongoing economic decline or that offers a compelling alternative to the now ascendant Republicans.

Things got off to a rocky start when Gazette editor Rob Byers asked Biafore what Democrats should have done differently in the disastrous 2014 election.

“Raised a whole lot more money. Maybe worked a little harder to get out the vote.”

Maybe?

Noticing the obvious omission in Biafore’s response, Byers prods her. “Philosophically, though, any changes there?”

“We probably should have maybe done a better idea of defining who we were.”

Recognizing the challenge before them, the Gazette’s questioners then pose a series of questions that practically provide Biafore with step-by-step instructions for how to articulate a vision, message, and policies. But, it’s to no avail. Nor does the participation of Democratic Party Vice Chairman Chris Regan elevate the discussion above repeated platitudes about “getting out our message” punctuated by sniping about the legislature’s new Republican majority. Biafore and Regan even frame major issues in exactly the way their opponents want them to be framed.

Just like Republicans, Biafore talks about “coal” as though it’s a monolithic force in which the interests of the industry, of miners, and of West Virginia residents are identical. If current market conditions and West Virginia’s long and painful history have taught us nothing else it’s that (a) even when the coal industry has prospered, it has not led to job growth or prosperity for workers and communities, (b) the desire of the industry to reduce costs and defeat environmental and safety rules is diametrically opposed to the wellbeing of miners and to health conditions in mining regions, and (c) the future of the Appalachian coal industry is compromised not as much by EPA regulations as it is by economic forces including competition from low-cost coal in Illinois and Wyoming, low-cost natural gas and renewables, and a worldwide consensus that the health and environmental effects of burning coal are so dire and costly that its use must be reduced.

That being the case, West Virginia Democrats should forcefully distinguish between the interests of miners and communities on the one hand and those of the industry on the other because doing so would not only serve the public interest, but would also politically distinguish Democrats from Republicans who make hay by falsely declaring that opposition to environmental and safety regulations is a fight for jobs when in fact the primary benefit is improved margins for mine operators with little or no impact on jobs or prosperity in West Virginia. Stating these truths would also put to rest the delusion that West Virginia’s coal industry and jobs would see a rebirth if environmental and safety measures were weakened.

If Biafore’s articulation of Democrats’ position on coal is bad because it’s misguided, her description of party economic policy is worse because it appears there isn’t any. While she mentions tactical measures such as raising the minimum wage and efforts to promote pay equality, Biafore fails to articulate any kind of overarching economic philosophy or principles.

She certainly doesn’t criticize current state economic policy, which can be summarized as “cut business taxes and pray the natural gas industry saves our asses”, probably because, although the policy is Republican in nature, it was proposed and implemented by Democratic governors and Democratic majorities in the legislature. In any case, West Virginia has seen no growth in jobs and prosperity. What we have seen are regularly recurring state budget deficits.

The good news politically is that these policies are fully embraced by Republicans even more enthusiastically than by the Democrats who enacted them. So, Democrats are now perfectly positioned to pivot on the issue and denounce what has been a manifest failure. The denunciation should be accompanied by the presentation of an alternative progressive economic agenda that would expand West Virginia’s economy by (a) defending the wages of West Virginia workers against assaults from Right to Work laws and weakening of the prevailing wage law; (b) revising West Virginia’s tax code to stop the repatriation of hundreds of millions dollars annually from the state’s economy while doing nothing to increase jobs or commerce; (c) using the revenue gained from revisions to the tax code to reduce the costs of higher education, invest in infrastructure and jobs, and cut personal income taxes so West Virginians can keep more of what they earn; and (d) defending federal programs, including Social Security, Medicare, Food Stamps and other entitlement programs that provide desperately needed income for West Virginians and without which the state’s economy would contract even more.

It’s an economic policy and roadmap for greater wealth and prosperity that would powerfully distinguish Democrats from Republicans and leave Republicans holding the bag and baggage for the state’s current economic woes, which currently include thirty six consecutive months of decline in the number of West Virginians with jobs and chronic state deficits at the same time when jobs and the economy are growing at a healthy pace nationally.

Also absent from Biafore’s remarks is any mention of the environment, a truly remarkable omission in a state that perpetually lurches from one environmental crisis or industrial disaster to another responding each time with enhanced safety and regulatory measures only to see those enhancements rescinded months or years later as public apathy allows. From religious conservatives who believe we must be stewards of the earth with which God has blessed us, to environmentalists who observe the mounting crises caused by global warming, to residents and communities that see their health and property values destroyed by practices such as mountain top removal and the poorly regulated disposal of fracking waste, West Virginians will be receptive to a moral, economic, and public health argument that we must fight Republican efforts that would eliminate virtually any restraint on industry and that would also limit West Virginians’ access to the courts ensuring they will never be fully compensated for the damages they suffer. The question is, will Democrats have the courage to make the argument.

The same question can be asked with respect to the issue of healthcare. Obamacare or the Affordable Care Act (Biafore can’t bring herself to utter either name) has been an unmitigated blessing for West Virginia not just for the health of more than a hundred thousand West Virginians, but also for the economic benefits, which include more than $500 million dollars pumped into the state’s economy annually.

Finally, there are the gut issues that motivate many West Virginians – God, guns, and gays, and, lest we forget abortion and race. In her interview Biafore discusses the gun issue and correctly points out that many people who are generally supportive of gun rights are none the less taken aback by Republican legislation that would nearly abolish licensing and training safeguards and that would lead to weapons being present in nearly all places. Biafore also mentions Democrats’ successful effort in the last legislature to fight off Republicans’ attempt to pass a so-called religious freedom law that looked like a great deal like Indiana’s. But, pointing out Republican excesses isn’t enough.

While fighting for progressive positions on these issues individually, there is also an opportunity for Democrats to bundle social issues as part of a larger narrative accusing of Republicans of making West Virginia appear to the world, including people and businesses that might move and invest here here, to be a reactionary backwater of bigotry, ignorance, and resistance to modernizing influences that are shaping society.

West Virginians resent nothing more than being dismissed as rednecks and hillbillies and will understand the destructive consequences of such an image, which, along with environmental degradation and the absence of an educated workforce, constitute a far greater barrier to economic prosperity than do issues of taxation and government regulation.

In the wake of their 2014 electoral disaster, West Virginia Democrats have an opportunity to remake themselves by remaking their vision for the state. But, again, merely criticizing Republicans for their extremism isn’t enough. Democrats can and should be the party that speaks truth to West Virginians by acknowledging our shortcomings and by articulating a new economic and social narrative that explains how we got into the situation in which we find ourselves and how we can get out.

Honesty begets trust and vision begets hope and from those things votes will follow. The question is, can West Virginia Democrats find leadership capable of delivering either one. They haven’t yet.


Friday, April 3, 2015

OBAMACARE FEARS VS. FACTS -- A SUMMARY FROM JASON FURMAN

The following charts are from a presentation given yesterday by Jason Furman, chairman of the Council of Economic Advisers, in which he reviews the economic impacts of the Affordable Care Act (Obamacare) so far. In particular he addresses concerns and criticisms of the law that were raised by opponents both before the law's passage and since its implementation.

CLAIM: OBAMACARE WILL BE A JOB KILLER

CLAIM: EMPLOYERS WILL SWITCH FULL-TIME JOBS TO PART-TIME JOBS

CLAIM: OBAMACARE WILL BE A BUDGET BUSTER

CLAIM: OBAMACARE WON'T HELP THAT MANY PEOPLE GET HEALTH INSURANCE

CLAIM: OBAMACARE WILL DRIVE UP HEALTHCARE COSTS

CLAIM: OBAMACARE WILL DRIVE UP INSURANCE PREMIUMS

CLAIM: OBAMACARE WILL DRIVE DOWN WAGES

A chart missing from Jason Furman's presentation was the one showing the number of times Americans have had their identities stolen by inadequately screened Obamacare navigators, a scourge that was loudly and freqently promoted by West Virginia Attorney General Patrick Morrisey. The reason the chart is missing?

Had it been there, it would have been blank because there haven't been any instances of identity theft by an Obamacare navigator.





Tuesday, March 31, 2015

WHY INDIANA'S RELIGIOUS FREEDOM LAW IS DIFFERENT AND PERNICIOUS

Although Governor Mike Pence claimed otherwise, Indiana’s Religious Freedom Restoration Act is distinct from other similarly named laws in that it governs not only interactions between individuals and the government, but between private parties as well. That’s why the Indiana law, unlike other state laws and the federal Religious Freedom Restoration Act, makes it possible for private businesses to claim a right to discriminate against gay and lesbian citizens or anyone else to whom they might object on religious grounds. And, if that decision were a purely private one, the state would have little to say about it. But, such decisions are not purely private. They occur within the marketplace and markets are not spontaneously occurring things.

The free market we enjoy is a creation of the state and is perpetually dependent on the state – its laws, courts, police, fire departments and other public services – to protect against primal forces that would, if unrestrained, turn the peaceful and orderly marketplace into a Hobbesian state nature – a war of all against all. Needless to say, the public services that enable free markets are financed through taxes that are paid by citizens – all citizens. That dependence on compulsory public support gives the citizenry, acting through its agent, the government, the standing and the right to establish conditions that those who wish to engage in commerce must meet in order to enjoy the privilege of operating a business in a safe, well-regulated marketplace.

So, it’s not unreasonable, nor should it be surprising, that citizens who are compelled to pay for the public services that enable businesses to operate should require those businesses to make their goods and services available to all citizens without discrimination on any grounds apart from those that might be prescribed by law. Otherwise, we would be faced with a difficult situation in which some some segments of the population would be compelled to pay taxes in support of businesses that refuse to do business with them.

In addition to that basic unfairness and the fact that discrimination is to many of us inherently repulsive, the state has another compelling reason to bar discrimination in private commercial activities. We see all over the world and in some ways in this country as well the price that can be exacted from societies that fragment along religious, racial, and ethnic lines. To institutionalize religious discrimination by making it a right, as the Indiana law does, takes a first step down that path.

That’s why, as a matter of principle and a matter of expediency, the Indiana law should be modified or repealed. Meanwhile, those who believe their religious faith bars them from commercial interaction with gays and lesbians face a serious conundrum. Owning and operating a business would seem to be a non-starter, but is working as an employee for a firm owned by others a viable alternative if that firm and all firms serve gays and lesbians?

There's just no getting away from them . . . which is precisely the way it should be.


Monday, March 30, 2015

JOE MANCHIN AND THE ECONOMY OF DOOM: A REALITY CHECK

Since becoming a senator, Joe Manchin's two most noteworthy actions in the area of economic policy have been his championing of the Bowles-Simpson deficit reduction plan and his vote against Janet Yellen when she was nominated to become chair of the Federal Reserve Board. In both cases Manchin was motivated by his belief that deficit spending and the Fed's easy money policies were leading the nation to a fiscal precipice from which, he warned ominously, the nation would tumble into "a credit downgrade, reduced GNP and a devastating spike in inflation".

That was in 2012 in a speech to the Weirton, WV Rotary Club. So, what has happened in the intervening two and a half years during which the Bowles-Simpson plan was dismissed, Yellen was confirmed to lead the Fed, and the policies against which Manchin warned -- a low discount rate, quantitative easing, and deficit spending -- continued?

The latest numbers show that January marked the 34th consecutive month in which inflation has come in below the Fed's target-rate of 2%, the 25th consecutive quarter of GDP growth, and the 60th consecutive month of job growth -- the latter an all-time record.



FACTS CONFOUND CONGRESSMAN MCKINLEY AGAIN

Last year the Obama administration took a number of steps to reduce emissions of greenhouse gases including the issuance of new rules by the EPA and the signing of an emissions reduction agreement with China. These measures were immediately and furiously condemned by Congressman David McKinley (R - West Virginia) who complained that the rules would cripple economic growth in the US while giving our global competitors, particularly China, a free-pass to continue using low-cost coal to drive their economies.

In an earlier post titled "Congressman McKinley Meets Charlie Chan" I pointed out that the congressman's assumption that China would happily continue to increase its consumption of coal ignored both economic and political forces that would have exactly the opposite effect. This week that observation was validated by two reports. First, the Economist magazine in a story titled "Coal Mining In The Depths", reported that last year China actually reduced its consumption of coal by almost 2% even though its economy grew by over 7%. Meanwhile, Bloomberg reported that China will close the last of four major coal-fired power plants next year and replace them with electricity fueled by low-cost natural gas in order to reduce Beijing's legendarily high levels of air pollution.

It's probably too much to expect that the events in China will cause Congressman McKinley to alter his views since on the larger issue of man-made climate change he remains resolute in his denials despite an avalanche of data and virtual scientific unanimity. Still, perhaps some of his constituents can be swayed by facts.



 
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