W.Va. business climate needs a change

An article in the Huntington Herald-Dispatch about a week ago proclaimed a milestone for the Toyota engine and transmission plant in Buffalo — it had produced its 10 millionth power train, the first plant outside of Japan to reach that milestone.

The event was attended by some heavyweights, including the honorary chairman of Toyota, Shoichiro Toyoda, as well as Sens. Joe Manchin and Jay Rockefeller.

The article said “Rockefeller has long been credited with helping sell West Virginia and its attributes in a way that enticed Toyota to set up shop in the Mountain State.” The plant started with 300 employees in 1998 and has 1,300 today. Manchin describes the plant’s employees as the “greatest selling tool we have in West Virginia. … I brag on you everywhere I go. Toyota would not have made this investment without the quality of work you have done as West Virginians.”

Actually, there were other factors involved.

According to economist Dr. Russell Sobel, editor of the landmark 2007 book, Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It, “occasionally we attract something like the Toyota facility in Buffalo, West Virginia, but this only happened because of an intense political negotiation in which Toyota’s property taxes were lowered significantly, and some regulations were eased.” (page 25)

In other words, with all due respect to Sen. Manchin, Toyota would not have made this investment without a special tax break.

In West Virginia, there is a property tax on business inventory, machinery and equipment. It means that a business must pay tax on business assets whether or not it makes a profit – or even before generating any revenue. This elevates the risk profile of start-ups and encourages entrepreneurs to start companies elsewhere. It is a non-starter for capital intensive businesses like automobile manufacturers. Capital goes to where it is treated best, and not even China taxes capital investment. It is the equivalent of a farmer eating his or her seed crop, a job killer.

Capital investment is what makes workers more productive and therefore able to earn more. Virginia eliminated the tax more than a decade ago. As of 2010, Virginia’s Loudoun County, our next door neighbor, had the highest per capita family income in the nation at over $100,000.

So why did Toyota decide to locate in West Virginia? In essence, West Virginia circumvented its tax on business assets by assuming ownership of those assets. The state then leased those assets to Toyota, allowing the company to avoid the brunt of the property taxes. This brings two thoughts immediately to mind. First, if you have to circumvent the tax in order to attract business, that might be a clue that the tax is a bad idea in the first place. Secondly, I was taught in school that the definition of socialism was that the state owns the means of production.

According to Sobel, “all firms in our state should have a good business climate, like the one afforded to Toyota” without having to lobby politicians to get it.

“Many of the firms in our state – including our small entrepreneurs – simply don’t have the political power to even begin to negotiate a better business climate like Toyota did,” he wrote.

In other words, when the government gets to pick the winners and losers in the marketplace, there are a couple of politically connected winners and the rest of us are losers. To again quote Sobel: “There is a difference between what economists call capitalism and what some might consider ‘business-friendly policies.’ When government gives subsidies or tax breaks to specific firms … and not to others, this is at odds … with capitalism.” Some people call this crony capitalism.

I attended the Attorney General Patrick Morrisey’s Jobs Summit town hall meeting in Charles Town on Monday. In his opening remarks, he mentioned the tax on business property, machinery and inventory and its negative effect on job creation. He also stated that tax breaks are not the answer, that we need a fair and level playing field.

I don’t blame Toyota for negotiating in their best interests. I’m glad they do business in our state. I wonder why there are legislators that still support this job-killing tax. Those that do should be voted out of office.

— Elliot Simon writes from Harpers Ferry

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