Business tax cut helps out-of-state corporations, not WV
Charleston Gazette - State leaders are pushing for another large tax cut for corporations and they want you to pay for it. The constitutional amendment (SJR9) would phase out the industrial personal property tax on machinery, equipment, and inventory for manufacturing, coal mining, and natural gas and oil extraction. Link.
This would create a $150 million budget hole for local public services, such as schools, police, firefighters, emergency responders and libraries. While SJR9 says it will fill the revenue hole, it does not specify where the money will come from. Most likely lawmakers will pay for it either by reducing public services or shifting the tax load onto homeowners or other state residents.
During the last business tax cut go-around, some corporate lobbyists promised “economic growth, job creation and increased revenues,” but what West Virginia families were left with was years of budget deficits, skyrocketing college tuition, and fewer private sector jobs than before the business tax cuts were put in place. Corporate interests have long decried that the business personal property tax is a “job killer” and that eliminating it is a surefire way to boost job growth and investment; however, there is little evidence to support these claims.
State and local business taxes usually make up no more than three percent of the cost of doing business. Labor, electricity, transportation, property, raw materials and equipment are very often more substantial costs for businesses and can have a greater impact on profit margins. And, as the West Virginia Commerce Department has points out, West Virginia already has a “business tax climate” better than all of its surrounding states and one of the lowest costs of doing business in the nation. Demand for a business’ products or services — not taxes — is the primary driver of hiring.
Eliminating our industrial personal property taxes is far more likely to hurt state economic growth than help it, especially in the short-term. That’s because most of the tax is exported out of state along with most of the coal, natural gas and manufactured goods. According to the Minnesota Department of Revenue, 75 percent of that state’s industrial property taxes are exported or paid by people who do not live in Minnesota.
If we assume the same for West Virginia, then $113 million of the $150 million in industrial personal property taxes levied in West Virginia is not paid by West Virginians. If the Legislature decided to reduce state services by $150 million or raise taxes like the sales tax or property taxes on homes — which are not as exportable and largely paid for by West Virginians — to make up the difference, this would reduce the amount of income circulating in the state, which could lower economic growth.
It is also important to keep in mind that big corporations in West Virginia have already received very large tax cuts. According to the Institute on Taxation and Economic Policy, pass-through businesses and corporations in West Virginia will receive an estimated $382.6 million reduction in taxes next year alone from the GOP-Trump tax bill. These federal tax cuts come on the heels of over $225 million per year in annual state business tax cuts from the elimination of the business franchise tax and reduction in the corporate net income tax that were put in place several years ago.
Is there a more sound approach to eliminate the industrial personal property tax on inventory and machinery and equipment? Yes. If the motivation for eliminating this tax is because it falls on capital investment and inventory, then lawmakers could easily allow counties to raise real industrial property tax rates on land and improvements and allow them to establish a mining production tax to help offset the reduction in industrial property taxes. This would help ensure that the tax load is not shifted to low- and middle-income families and that important investments in schools and other building blocks of economic growth are not damaged.
Our state faces many serious problems — including growing income inequality, an opioid epidemic, poor health outcomes and low college attainment — and cutting more business taxes is not going to solve them. Everyone, especially large corporations, should pay their fair share in taxes.
Instead of aiming to be a cheap place to do business — which we already are — we need to be a good place to do business. And this means investing in our people and communities instead of pursuing a trickle-down economic approach that redistributes more money upward to those who need it the least.