Sales tax hike: Balancing the budget on the backs of West Virginians

As I stated previously, some of the best things that happen in Charleston are things that don’t happen. A prime example was House Bill 4456, introduced by Delegate Jim Morgan, a Democrat from Cabell County.

Faced with a state budget shortfall, Morgan’s legislation proposed raising the West Virginia state sales tax 1 percent from 6 to 7 percent. The bill was sent to the House Finance Committee never to be heard from again. Had it become law, West Virginia would have had the highest sales tax in the nation, alongside five other states.

Morgan, who was appointed to his current seat in 2001 to fill a vacancy, is the chairman of the House Committee on Government Organization and is a graduate of West Virginia University. He also serves on the House Committee for Small Business Entrepreneurship and Economic Development. There’s an irony to this.

In 2010, an article appeared in the Mountaineer News Service, published by the WVU School of Journalism, entitled “Small businesses face uphill battle in West Virginia.” Here’s what the article had to say: “Small and local businesses, once a staple of Main Street America, have begun to disappear throughout the state of West Virginia in recent years…the U.S. Small Business Administration’s Office of Advocacy reports that West Virginia lost nearly 4,000 of its small businesses (500 employees or less), from 2000 to 2010 alone, which equates to over 12 percent of the state’s total small employers.”

Perhaps the committee on which Morgan serves should instead call itself the House Committee to Eliminate Small Business Entrepreneurship and Economic Development in West Virginia. Raising the sales tax in our state would help accomplish that.

Politicians generally do not understand economics or the consequences of their policies. An economy is an ecosystem and taxes have side effects – much the way pollution negatively affects the environment. The more pollution, the greater the risk to the environment. The higher the taxes, the greater the risk to the economy.

Most decisions made by consumers happen at the margin and taxes really do have an effect on both supply and demand. For one thing, taxes take spending power out of the hands of consumers. This is simple arithmetic. If consumers have to spend more on taxes they have less to spend on goods and services with the greatest proportional loss in purchasing power falling on those with the lowest incomes.

Then there is the “border effect.” Much has been written and discussed regarding our higher local gas prices caused mainly by higher taxes. We all know people who gas up elsewhere to take advantage of the cheaper price. This is a “lose-lose-lose” proposition for consumers, small businesses and the state.

The Connecticut legislature recently did a study on the effect of raising taxes for localities that border another state; in this case it was Massachusetts. The report included the economic effects of various kinds of taxes: sales taxes, meal taxes and hotel occupancy taxes – all of which had a negative impact on economic activity. With regard to sales taxes, the report found that a three-quarter of 1 percent increase in the sales tax had the effect of decreasing sales by 2.3 percent.

The Federal Reserve has conducted a study to determine the effects of cross-border sales tax disparities on employment. According to its report: “Sales tax increases, relative to cross-border neighbors, lead to losses of employment, as well as payroll and hiring, but these effects are only found in counties with large shares of residents working in another state.” That brings us to Jefferson County — a large segment of our workforce commutes to jobs elsewhere. There are reasons for this, but we’ll leave that for another time.

The nearly $4 million shortfall in the Jefferson County Commission budget has been in the news of late. Spending cuts have narrowed the gap, but the County Commission has been considering instituting a local sales tax of 1 percent in an attempt to close it completely. There is no guarantee that this will get the job done, and as the above studies warn, it likely will have an adverse effect on our local economy in the form of a decrease in sales and an increase in local unemployment. In short, it will do more harm than good.

Past policy mistakes are coming back to haunt us. The assumptions being made for future growth as Envision 2035 looks out over the next 21 years are already coming undone. The so-called “better deal” from table games doesn’t look as good in the face of declining revenues. Compounding the problem are fiscal, regulatory and economic policies that have discouraged businesses from locating here, preventing a healthy diversification of our local economy.

And — here’s the punchline. Just when you think our state legislators in Charleston are done and we can begin to breathe easier and look forward to the coming of spring, they go into special session and pass more legislation.

As we dodged the HB 4456 bullet and its 1 percent sales tax increase, SB 1005 was introduced on March 14 and breezed through both houses the same day. Are you ready? It authorizes pay raises for county commissioners and other elected county officials. You can’t make this stuff up. Among Jefferson County legislators, both Sens. John Unger and Herb Snyder supported the bill. On the House side, Delegate Stephen Skinner supported it, while Delegates Tiffany Lawrence and Paul Espinosa did not.

— Elliot Simon writes from Harpers Ferry


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