“Leeches! I must have more leeches!”
That’s the economist, Jared Bernstein, parodying British Chancellor of the Exchequer George Osborne, by portraying Osborne as a medieval physician practicing bloodletting to rid the British economy of “evil humors”. It’s a figurative, but sadly accurate characterization of Britain’s failed policy of budgetary austerity to which Osborne has grimly clung despite his nation’s five-year descent into double-dip recession and economic stagnation.
But, Bernstein might as easily have been parodying West Virginia Governor Earl Ray Tomblin and state legislators, Democratic and Republican, who as stewards of West Virginia’s economy continue to practice their own form of bloodletting -- corporate tax cuts and favors, which, because they primarily benefit out-of-state businesses and individuals, drain West Virginia’s economy of money and shift more of the tax burden onto West Virginia residents.
Tomblin and the others argue that their policies will increase investment in West Virginia by reducing costs. But years of business tax cuts and incentives have merely exported hundreds of millions of doallars out of state without any measurable benefit in jobs or investment. That’s because, looked at another way, the policy is really just a form of discounting, which is what merchants do when their products won’t sell. It’s a final act of desperation to which sellers resort when they don’t know how to improve their product or correct its weaknesses, which in West Virginia’s case include a poorly educated workforce, decrepit infrastructure, a dearth of suppliers and service providers, a poor quality of life, and a degraded environment.
An indication of our leaders’ desperation and their inability to think of ways to address West Virginia’s fundamental problems was a comment made by a state legislator who is generally progressive in outlook. When asked why he supports continuing ineffectual corporate tax cuts, he replied, “What else can we do?”
His reaction perfectly captures West Virginia’s problem. Although current policies are failing and many legislators know it, they can’t think of an alternative. So they repeat past errors, hoping for different results, but inevitably falling victim to the prophecy of Moms Mabely who said, “If you keep doing what you did, you’ll keep getting what you got”. In West Virginia’s case, that isn’t much.
So, here in broad strokes, is an alternative -- a series of policies for economic growth that, in contrast to the failed practice of discounting the state and exporting assets, would expand West Virginia’s economy by retaining more of the wealth the state generates and by attracting funds and investment from beyond West Virginia’s borders.
First, West Virginia can rebalance its mix of taxes to reflect national averages and shift much of the burden from West Virginia residents to out-of-sate entities. Doing so would save West Virginia residents between $250 million and $350 million a year in taxes without reducing government revenues. Most of the savings would be directly injected into the state’s economy.
Second, West Virginia should raise the minimum wage. One-third of jobs in West Viriginia pay poverty-level wages (at or below the federal poverty line for a family of four), the highest proportion in America. Last year a study by the Economic Policy Institute showed that raising the minimum wage from $7.25 an hour to $9.85 would increase wages by $300 million annuallym add $200 million a year to economic acitivity, and yield 800 new jobs over three years.
Third, at a federal level, West Virginia representatives should defend Social Security benefits. West Virginia gets a greater share of household incomes from Social Security than any other state. In fact, Social Security provides more income to West Virginians than the entire coal industry. So, cuts to Social Security benefits, such as those resulting from increasing the eligibility age, will harm West Virginia more than any other state. That's why our representatives must defend Social Security resolutely.
Fourth, on federal taxes, two of our congresspeople, David McKinley of the first district and Shelley Moore Capito of the second, as well as Senator Joe Manchin, stood quietly by while the federal payroll tax cut expired last year. Their acquiesence along with that of their colleagues cost West Virginia taxpayers $500 million a year in income. State leaders and citizens should insist that our federal representatives support restoration of the payroll tax deductions and the implementation of other progressive tax policies as part of upcoming budget negotiations.
Finally, West Virginia should take advantage of every opportunity to attract more money to the state’s economy. The recent decision to expand Medicaid under Obamacare will inject $500 million a year into West Virginia’s economy. We need to seek out every such opportunity.
Collectively these measures would expand West Virginia’s economy by billions of dollars annually. That translates into greater incentives for working, more jobs, and increased sales for West Virginia businesses, which is a far more powerful incentive to expand and hire than fractional reductions to tax rates, especially since, by retaining more of its resources, the state would also be able to address issues of education and infrastructure, which are the other great inhibitors of business growth.
Some will argue that these measures would discourage business expansion by raising business costs. They are wrong and future columns will explain why. In the meantime, the choice is stark. We can invigorate the economy by retaining and investing more of the wealth that’s created by West Virginia resources and labor or we can apply more leeches.