Delaying Tax Reform Delays Prosperity
How many southerners does it take to change a light bulb?
Actually, just one. However, it has long been a custom for gentlemen of the Confederacy to attend the changing ceremony and offer their recollections of the years of faithful service that the old bulb gave.
My favorite light bulb joke reminds me so much of West Virginia's attitude toward business tax reform -- 40 watts was good enough in Grandpa's day; 40 watts will do for ours.
"Unleashing Capitalism," Russell Sobel's collection of thought-provoking articles, makes it very clear that prosperity stops at the West Virginia state line. He has the pictures to prove it.
Some of the many reasons advanced in the book for our losing the battle of border warfare point to the state's taxation of businesses. And in this category, the business franchise tax and property tax are not really taxes at all -- they are instruments of punishment aimed at foolhardy capitalists.
Now that Sobel and his colleagues have exposed flaws in the business tax structure, the power brokers in state government have begun their defense of the status quo. This was not unexpected. But the defense they offer is pretty weak.
The party line defense is: If we cut business taxes now, the state just might need that revenue during an economic downturn in the future.
This defense for not cutting taxes works only when one condition has been met -- government spending has been trimmed to the bone, and there is nowhere else to cut. But such is not the case. Let's look at Clarksburg and Weston.
The state-owned, state-operated Veteran's Nursing Home and the public-private Stonewall Resort are two examples of the creative ways that our state wastes money. The state has no business running a nursing home, a mission that it proved it couldn't handle before the facility even opened. As a hotelier, the state had already lost tens of millions of dollars operating park lodges before dreaming up the Stonewall project.
If West Virginia politicians were farmers, they'd fertilize their fields with rock salt and then sit back and wait for a bumper crop of vine-ripened pickles and boughs of flossy sauerkraut. And when the crops predictably failed, they'd sow more salt.
We know that the business tax code is punitive. Toyota's incredibly successful engine factory in Putnam County owes its success to, in large part, special arrangements that allow for tax avoidance. The state tax code was the deal breaker -- no tax relief, no factory.
Before Toyota, we had the super tax credit model for picking winners. As I recall, this credit was the workaround for the notorious gross sales tax on business.
Whether you tax capital and inventory or a company's gross receipts makes little difference to the balance sheet. These types of taxes have the same effect in that they work against building the capital account.
Time and time again, we have seen substantial capital investment in plant and equipment as a result of the elimination (or very substantial reduction) of business taxes. Yet our state's leaders fail to comprehend the simple but obvious message -- reform the tax code for all businesses, and prosperity will follow.
My biggest concern regarding tax reform in West Virginia is the current notion that we must cautiously phase out a specific tax. This indicates to me that nobody in state government has a comprehensive tax plan. Such tentative phase-outs also can be translated as meaning that nobody understands the tax base well enough to even craft tax models for the future.
Business tax reform is the best way to create jobs. And it needs to happen sooner rather than later if we expect to keep the lights on.
David G. Allen
"Delaying Tax reform delays Prosperity" originally appeared in the February 29, 2008 issue of the West Virginia State Journal and was reprinted in the March 5, 2008 issue of the Clarksburg Exponent-Telegram.
Copyright 1990-2008 David G. Allen