Wednesday, July 10, 2013

INNUMERACY ATTACK! Ogden Newspapers editorial exaggerates cost of alt fuel tax credit by 33X.

This week West Virginia newspapers owned by Ogden Publishing have been running an editorial decrying what are described as “taxpayer subsidies of politically correct causes” (by which it does not mean subsidies enjoyed by the coal industry, the oil industry, the natural gas industry, and assorted business interests, whose sums vastly outweigh those going to “politically correct causes”). But, I digress. The editorial has in its sights West Virginia’s Alternative Fuels Tax Credit, which allows consumers and businesses to take a tax credit of up to $7,500 for the purchase of an alternative fuel automobile and $25,000 for a heavy truck.

Ogden’s general complaint is that “West Virginians had no business subsidizing electric and hybrid cars in the first place”, but its specific gripe is that in June the Alternative Fuels Tax Credit “drained money badly needed to keep the state’s budget in balance”. How much was drained? The editorial only tells us, “During June alone, $29 million in alternative fuel vehicle tax credits were claimed”.

But, is that the amount the state actually lost due to the tax credit? A casual reader of the editorial would certainly think so, especially since that figure is contrasted with the $20 million the state had to take from a Medicaid reserve account to avoid a deficit for the month. But, the casual reader would be wrong.

What Ogden’s editorial failed to explain, as did stories in other West Virginia newspapers, is that the amount of the tax credit is not the amount the state would have otherwise received in actual revenue. Instead, it’s the amount taxpayers can subtract from their overall income before calculating their state income tax liability. And, since the maximum income tax rate in West Virginia is only 6.5% with an average closer to 3%, the actual revenue loss to the state is only about 1/33rd of the amount claimed in credits. In other words, the actual amount of revenue lost to the state in June due to the Alternative Fuels Tax Credit was only about $870,000.

$870,000 is a lot less than $29 million and much closer to reality as acknowledged by state Deputy Revenue Secretary, Mark Muchow, who told the Associated Press in February that, if the Alternative Fuels Tax Credit were repealed altogether, the state would gain about $10 million per year in additional revenue.

Stories and editorials about state government finances and tax incentives offered to individuals and private sector businesses are important, but they need to be contextually accurate – a test the Ogden editorial failed. Besides, in addition to addressing a small consumer tax credit that made up only about 4% of the state’s budget shortfall in June, Ogden could have served its readers by devoting proportionately greater attention to the business tax subsidies that are responsible for the other 96%.

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