Sunday, May 27, 2012
My dad, Hal O'Leary, will perform an excerpt of my latest play, THE BOY IN THE BOX, at the Wheeling Arts Fest on Saturday, July 14. THE BOY IN THE BOX is the first new play commissioned by Barter Theater in Abingdon, Virginia as part of its Shaping of America Series. Click on the Wheeling Arts Fest link for details.
Wednesday, May 23, 2012
Some people believe Senator Joe Manchin will run for president someday. If he does, Manchin will almost certainly tout his term as West Virginia governor during which he cut taxes and balanced budgets in one of the most economically depressed states in the union. And, if Manchin’s candidacy gains traction, his opponents will respond.
They’ll say, “Joe, anyone can balance a budget if you’re willing to settle for the worst schools, the worst healthcare, and the worst infrastructure in the nation. West Virginia is the poorest, least educated, and unhealthiest state in America. Is that what we want for the country?”
The accusation won’t be entirely fair. West Virginia isn’t the worst state in every category. In some, we rank as high as 47th or 48th. But, for political purposes, the claim will be true enough. West Virginians will be humiliated and Manchin’s candidacy will come to an ignominious end.
This gaze into the future isn’t done to help Joe Manchin with his career choices. It’s to point out that as governor Manchin aggressively cut business taxes in order to grow West Virginia’s moribound economy and it didn’t work. The price we’re now paying isn’t just the lowest level of adult employment in the country, but also chronic under-investment in the state and its people, which means our future prospects are as dim as our present situation. And worse, current governor Earl Ray Tomblin and the legislature continue to pursue the same failed policies.
But, why did the strategy fail? And why do we continue to believe in the tax cut fairy?
Basically there have been two kinds of tax cuts: reductions in the Corporate Net Income and Business Franchise taxes (CNIT/BFT), which apply to all businesses, and targeted tax incentives, such as those offered to Shell Oil in our failed pursuit of the ethane cracker plant. Examining both types requires more space than a single column permits. So, today we’ll focus on CNIT/BFT and in two weeks explore targeted tax incentives.
The theory behind cutting CNIT/BFT is that it puts money in the pockets of businesses enabling them to expand and hire more people, while making West Virginia more competitive with other states in attracting new businesses.
As Ted Boettner and the West Virginia Center on Budget and Policy has thoroughly documented, CNIT/BFT, which made up almost 13 percent of general fund revenues in 1990, has been cut to the point that they comprise only about 4 percent in 2012, forcing personal income taxes and severance taxes to make up for the loss. Additionally, CNIT/BFT is scheduled for further cuts over the next three years and businesses are now lobbying for cuts to the state’s Business Personal Property Tax as well.
Yet there has been little or no incremental growth and the state’s ability to address education, infrastructure, and healthcare issues has been hobbled.
The reason is that, while in the right conditions business tax cuts can be effective, those conditions don’t exist in West Virginia and aren’t likely to anytime soon.
Business tax cuts work when businesses want to expand, but can’t because funding through loans and other instruments is prohibitively expensive. Today, however, we have precisely the opposite situation. Interest rates have never been lower making funding inexpensive even without tax cuts.
Moreover, cheap money or not, businesses don’t expand and hire unless they must to meet demand for their products. But, we’re still feeling the effects of a recession whose signature characteristic was a drying up of demand, which from all indications will continue to be weak.
Third, as a percent of business’s operating costs, the tax cuts are so small and spread so thin, they’re not sufficient to change business behavior and end up rewarding businesses for doing what they would have done anyway.
Fourth, West Virginia’s business tax environment is already quite competitive ranking 23rd among all states in the Tax Foundation’s latest State Business Tax Climate Index.
Finally, much of the money that companies receive from tax cuts leaves the state. West Virginia is unusually dependent on out-of-state employers. When Wal-Mart, the state’s largest employer, gets a tax cut, the savings go to corporate headquarters in Arkansas.
The result is that money is squandered with little gain. So, why in the absence of beneficial results, do our leaders continue to believe in the tax cut fairy? Probably because cutting taxes can be dressed up as good public policy and it pleases important constituents.
But, in the absence of the right conditions, we only manage to cripple the state’s ability to address the fundamental issues that discourage businesses from locating and expanding in West Virginia – the lack of an educated workforce, inadequate infrastructure, and a poor quality of life.
By choosing to hand out ineffectual tax cuts rather than address these issues more aggressively, the governor and legislature are basically conceding that they lack ideas, motivation, and the expectation that the challenges can be overcome.
Some will object that West Virginia is, in fact, working hard to address these problems and that in some areas the state’s effort is equal to or greater than national averages. But, to use a medical analogy, some states have an economic cold and others have the flu, but West Virginia has cancer and cancer requires more than an average level of treatment.
In two weeks, we’ll peer into the state’s intentionally murky efforts to lure businesses and jobs to West Virginia with targeted tax incentives.
Monday, May 21, 2012
Greater depth from Rick Clewett in Sunday's Lexington (KY) Herald Leader on the depletion of Appalachian coal seams and the implications for the coal regions of KY and WV:
Monday, May 14, 2012
The musical, “My Fair Lady”, gave us the lovable lay-about and barroom philosopher, Alfred P. Doolittle, who calls himself one of the undeserving poor.
“I ain’t pretending to be deserving, I’m undeserving and I mean to go on being undeserving. I like it and that’s the truth."
It’s a description some would apply to many West Virginians, particularly food stamp recipients of whom we have nearly three hundred thousand, a sixth of our population. So reviled are they that some state newspapers call for their benefits to be reduced in order to lower the federal deficit. Meanwhile, Republicans in the House of Representatives propose cutting food stamps (or the Supplemental Nutrition Assistance Program as it’s officially known) in order to stave off cuts to the Defense budget.
The odd thing is that, amid the calls to cut and the inevitable objection that doing so would be unconscionably cruel to our most vulnerable citizens (a point we’ll come back to later), no one seems to have noticed how the cuts would affect West Virginia’s economy. Perhaps that’s because they assume the impact would be minimal or even beneficial. But, to believe that is to be sadly mistaken.
Proponents vary on how deep the cuts should be and whether they should be achieved by reducing the number of food stamp recipients or by reducing the dollar value of benefits. But, for simplicity’s sake, let’s assume that one way or the other food stamp spending would drop by 17 percent, the amount recently proposed by Congressman Paul Ryan of Wisconsin and embraced by House Republicans. According to the Center on Budget and Policy Priorities, a Washington think tank, the savings would come to $134 billion over ten years of which $840 million would come from West Virginia.
That’s roughly a $260 annual reduction for each West Virginia recipient of food stamps or a reduction of about 50,000 in the number of eligible West Virginians. But, from an economic perspective, the salient fact is that $84 million a year would be removed from West Virginia’s economy and most of the loss would be felt by the state’s grocery and beverage stores.
At a time when Republicans decry almost every government action as “job-killing”, you would think the threat of $84 million being taken out of the pockets of West Virginia consumers and grocers would elicit cries of outrage from politicians statewide. After all, $84 million represents three and a half percent of annual grocery sales, the loss of which might destroy hundreds if not thousands of jobs and plunge West Virginia grocers into a new recession on top of the one they just experienced. And, ironically, many of those laid off would themselves become eligible for food stamps.
Of course, some will argue that cutting government spending will spur the economy and job growth. And it might, if the savings would find their way back into the economy and into West Virginia’s economy in particular. But, almost none would.
If the savings were applied to reducing the federal debt, the money would vanish from West Virginia’s economy without any economic benefit. And giving the savings to the Defense Department, which spends less than three one-hundredths of one percent of its budget in West Virginia, would have almost the same effect.
Some people will still insist that debt reduction and Defense spending are more important priorities, but even if that’s true, it doesn’t alter the economic fact that a 17 percent cut to food stamps would act just like an $84 million tax increase on West Virginia retailers with the consequent impact on jobs.
Of course, some proponents of cutting food stamps make one more argument for doing so. Call it the Alfred P. Doolittle argument. They say many food stamp recipients are undeserving and even those who are deserving receive so much in benefits that it encourages dependency.
We’ve already noted that, if we kept all current recipients on the rolls, the cuts would average $260 per person annually or more than a thousand dollars for a family of four, a significant chunk out of anyone’s grocery budget. And who are these people?
38 percent are children. 85 percent live below the poverty line and half have incomes lower than 50 percent of the poverty line. 8 percent are elderly. Half of adult recipients have jobs that don’t pay enough to lift them out of poverty. Of the adults who are not working or elderly, most are disabled. And, although it should have no relevance, 93% are white.
In other words, there aren’t many Alfred P. Doolittle’s. But, statistics don’t capture the real toll of being poor -- the crushed spirits, the exhaustion, the shame, and the actual hunger among both adults and children to which the cuts would contribute. All of which makes of a mockery of the reverential self-regard of politicians who press for cuts and congratulate themselves for making “tough choices” when those who would suffer are the poorest and politically weakest among us.
But, the question isn’t whether they lack compassion. It’s whether they’re so vindictive toward the poor that they would willingly destroy jobs in West Virginia in order to extract another pound of flesh.
Sean O’Leary can be contacted at firstname.lastname@example.org.
Monday, May 7, 2012
Much is made of President Obama’s and the Environmental Protection Agency’s “war on coal”. And it’s true. In order to reduce air pollution and retard global warming, this administration, along with the governments of nearly all industrialized nations, is trying to reduce the burning of coal for the generation of electricity.
But, how much of a difference are the president’s policies making on the amount of coal that’s mined and on the number of jobs in the mining and power generation industries? In fact, let’s ask the big question. If this president is swept from office in November and the EPA’s power to regulate carbon dioxide emissions is removed, as presumed Republican challenger, Mitt Romney, has said he would do, what would it mean for America’s coal industry?
Would there be a rebirth? Would coal-burning power plants that are currently slated for closing become viable again? Would new coal-burning power plants be built to meet the growing demand for electricity? Would mines that have been closed be reopened? And would there be a rebound in hiring creating thousands of new jobs in the mining industry?
If you believe that the answer to any of these questions is, yes, you haven’t been paying attention to the market forces that, far more than government action, are killing coal in general and the Appalachian coal industry in particular.
What are those market forces? First, there is natural gas.
If the Obama administration is conducting a “war” on coal, then the English language hasn’t invented a word of sufficient ferocity to describe the conflict between coal and natural gas. Although West Virginia politicians are loath to admit it, every new gas well that’s sunk in West Virginia is another nail in the coffin of coal. Why?
The practice of fracking has greatly increased supplies of natural gas and reduced the price to the point that it costs only half as much to generate a megawatt of electricity from natural gas as from coal – half as much.
That’s warfare. And, in case you’re under the delusion that the competition between coal and gas is friendly, consider that between 2007 and 2010 Aubrey McClendon, CEO of Chesapeake Energy, the largest gas driller in West Virginia, donated $26 million to the Sierra Club’s campaign to block the construction of coal-fired power plants. Just last month McClendon did a victory dance when a Wall Street Journal writer asked him about his reputation as “the scourge of coal”. McClendon said, “I probably am not as strident as I used to be because I don't have to be. Natural gas has won in the marketplace and it is continuing to win.”
Far more than the president’s “war on coal”, the natural gas industry’s war has had measurable effects. Last year the amount of the nation’s electricity generated by coal dropped by 8.9 percent and coal is now responsible for less than 40% of the electricity generated in the US. This was partially attributable to warmer-than-average winter weather, but the bigger factor was natural gas which saw its volume grow by 7.2 percent.
And natural gas’s price advantage isn’t going away anytime soon. One of the reasons gas is so cheap is that the “wet gas” found in many of the Marcellus shale wells in West Virginia, also produces byproducts such as ethane, which is used in the plastics industry. At current prices, these byproducts almost double the value of natural gas. Economically this functions as a subsidy for which coal has no answer.
The second market force crushing coal in Appalachia is cost. The volume of Appalachian coal produced per miner dropped by 25 percent between 2001 and 2008. This decline in productivity is driven by the exhaustion of easily accessible coal seams and produces higher costs and reduced competitiveness in the face of the onslaught by natural gas.
The third market force killing coal is the American people.
In its April issue, Mother Jones magazine ran a story by Mark Hertsgaard documenting the virtual moratorium that has fallen upon the construction of new coal-fired power plants, particularly in the eastern part of the country. While there are just over 30 new coal-fired plants currently under construction in the US, more than 160 have been blocked often by local residents who don’t want what they perceive as a dirty industry in their back yards. They look not only at the global warming impact of coal burning, but at its effect on health as measured in elevated levels of asthma attacks and death.
By the end of the decade these combined market forces will have produced almost twice as much of a reduction in carbon emissions as would have been achieved under the proposed (and, in West Virginia, the much-reviled) cap and trade legislation that died in 2010.
Does that mean that Obama administration actions on coal are irrelevant or superfluous? Not altogether. Clean-air regulations are causing some older coal-fired power plants to be taken offline sooner than they otherwise would be because it’s not worth the cost to retrofit them with pollution control equipment. However, this is only slightly speeding up the inevitable. Those plants, like the coal industry as a whole, are dead men walking, not because of government action, but because of the free market. And the question for West Virginia’s political leaders is whether they will finally focus on building a post-coal economy rather than trying to postpone the inevitable.
Sean O’Leary can be reached at email@example.com.