CHARLESTON, W.Va. — After day-long testimony Monday from academics and experts from national organizations, a co-chairman of the legislative Select Committee on Tax Reform said reform ultimately may not mean big cuts or massive shifts in tax obligations.
“There’s a lot of reform we can address that may not seem large but can have impact on those it affects,” Senate Finance Chairman Mike Hall, R-Putnam, said after the second major session of the legislative interim committee on taxation.
He said it’s also clear that tax reform alone probably will not be enough to attract new business investment to the state.
“Tax policy may not be the only area we need to look at,” Hall said, adding, “It’s one factor but not the only one, without also looking at the regulatory environment, work force training, use of technology and other issues.”
Following a presentation by business and economics professors and Marshall and West Virginia universities, Hall asked why the recent elimination of the state’s business franchise tax and rollback of the corporate net income tax has not produced significant growth in the state economy. “That was passed with the hope those particular changes would incent[ivize] growth,” Hall said, adding, “You would think, if you leave $300 [million] to $400 million in our economy, it would show up somewhere.”
Jose Sartarelli, dean of the College of Business and Economics at WVU, said it could take years for those tax cuts to show any effect on economic development, particularly with states like New York and South Carolina offering more generous tax breaks to new businesses.
“This is a very nefarious, competitive marketplace today,” he said, saying the state needs to have an array of options for attracting new investment and must publicize those options.
“Do not expect taxation to be a silver bullet,” he said.
The academic panel suggested that the state’s business climate and tax rates are competitive with neighboring states and at or below national averages.
“If you only look at tax policy, West Virginia looks good from the 10,000-foot level,” said Jennifer Shand, director of the Center of Business and Economic Research at Marshall.
However, Jack Henchman, vice president of state projects for the Tax Foundation, an independent conservative-leaning think tank in Washington, said that while West Virginia ranks 21st in overall business tax climate, it ranks 42nd or lower in attracting corporate headquarters, research-and-development facilities and capital-intensive manufacturing investments.
“You need to look at things at a national or even a global context,” he said. “I would be very critical about trying just to beat Ohio, Pennsylvania and Kentucky.” He said West Virginia’s business taxes have gone from terrible to middle of the pack. He noted that the state is one of only two with a throwout rule, allowing the state to collect higher taxes on corporations also operating in states where similar taxes are not imposed, and is one of only a few states to have both an inventory tax and a personal property tax on equipment.
Much of the afternoon session was spent looking at tax reform measures in other states.
That included the cautionary tale of Kansas, which enacted major tax cuts without adopting companion legislation broadening the tax base, and now is enduring major budget shortfalls and a downgrade of its credit rating. “They’re out of money, essentially,” Henchman said.
North Carolina has seen a more positive outcome after cutting personal and corporate income taxes, with a projected $400 million budget surplus this fiscal year, presenters noted.
However, as Mandy Rafool with the National Conference of State Legislatures pointed out, critics charged that the changes shifted the tax burden to low- and middle-income residents, with 80 percent of North Carolinians seeing their taxes increase after the reform.
The select committee next meets on June 9, when it will hear from representatives of county and municipal governments; “Unleashing Capitalism” author Russ Sobel; and from Commerce Secretary Keith Burdette, who will discuss tax implications on efforts to recruit new businesses.
Reach Phil Kabler at email@example.com, 304-348-1220 or follow @PhilKabler on Twitter.