There are many reasons why our economy underperforms, as Professor Sobel outlines in his book. It includes the legal climate, the regulatory climate and our tax structure. West Virgini’s state government is also the most centralized in the nation. The West Virginia state government is also growing at a rate almost double the rate of inflation/population. In my humble opinion, all of the above need to be fixed, but if I were to prioritize them – I’d start with the tax structure. As a percent of income, West Virginia’s taxes are the 4th highest in the nation – higher than that of each of our neighbors. At the local level, Jefferson County is the top quintile of West Virginia counties with regard to tax our burden, with a tax quotient of over 1.25. (For more on this, see the local section of our website). With regard to business, there are a myriad of different taxes imposed on businesses in West Virginia. For a complete list you can go here. Among the highlights is a special tax on health care providers.
There are some encouraging signs. The Business Franchise Tax is being phased out. Further, the Corporate Net Income Tax has been lowered slightly to 8.75% and is scheduled to decrease in stages over the next few years to a more reasonable 6.5%. These changes alone have created a better climate. I don’t think that it is a coincidence that the West Virginia state economy outperformed the national economy in 2008 by a wide margin. But one year does not a trend make. We still have a long way to go to reverse decades of underperformance.
One of the most debilitating taxes on business is the tax on property, machinery and inventories. This hurts all business and in particular small business. It must be paid whether a business shows a profit or not. It discourages upgrading of facilities. It discourages capital formation, a critical ingredient to the creation of jobs. It is the equivalent of a farmer eating his seed crop. The state commissioned Tax Modernization Project Report of 2006 (a copy of which you can read here)recommended eliminating this tax. One of the problems in doing so is that it would require an amendment to the state constitution. Eliminating this tax could be the single most important step in promoting the prosperity of our state.
Elliot Simon
Why Does West Virginia Underperform Economically?
There are many reasons why our economy underperforms, as Professor Sobel outlines in his book. It includes the legal climate, the regulatory climate and our tax structure. West Virgini’s state government is also the most centralized in the nation. The West Virginia state government is also growing at a rate almost double the rate of inflation/population. In my humble opinion, all of the above need to be fixed, but if I were to prioritize them – I’d start with the tax structure. As a percent of income, West Virginia’s taxes are the 4th highest in the nation – higher than that of each of our neighbors. At the local level, Jefferson County is the top quintile of West Virginia counties with regard to tax our burden, with a tax quotient of over 1.25. (For more on this, see the local section of our website). With regard to business, there are a myriad of different taxes imposed on businesses in West Virginia. For a complete list you can go here. Among the highlights is a special tax on health care providers.
There are some encouraging signs. The Business Franchise Tax is being phased out. Further, the Corporate Net Income Tax has been lowered slightly to 8.75% and is scheduled to decrease in stages over the next few years to a more reasonable 6.5%. These changes alone have created a better climate. I don’t think that it is a coincidence that the West Virginia state economy outperformed the national economy in 2008 by a wide margin. But one year does not a trend make. We still have a long way to go to reverse decades of underperformance.
One of the most debilitating taxes on business is the tax on property, machinery and inventories. This hurts all business and in particular small business. It must be paid whether a business shows a profit or not. It discourages upgrading of facilities. It discourages capital formation, a critical ingredient to the creation of jobs. It is the equivalent of a farmer eating his seed crop. The state commissioned Tax Modernization Project Report of 2006 (a copy of which you can read here)recommended eliminating this tax. One of the problems in doing so is that it would require an amendment to the state constitution. Eliminating this tax could be the single most important step in promoting the prosperity of our state.