State Budgets

West Virginia State of the State: Governor Justice Changes His Tune on Tax Hikes

In his 2018 State of the State Address, West Virginia Governor Jim Justice (R.) lamented last year’s failed push for higher taxes, saying “It was really unfair to think that what I wanted to do was just come in and say, oh, we got a hole in the bucket. Let’s just raise taxes. That’s the last thing on earth I wanted to do. But I didn’t know what to do. I didn’t know where to turn.”  He credits the people of West Virginia for pulling the state from the brink of economic collapse. But the relative strengthening of the state’s economy is due in substantial part to the failure of last year’s proposals.

Let’s do a brief year in review. Last year, Gov. Justice delivered a bleak State of the State address, prophesying “dead” residents absent enactment of a slew of tax increases and fines. Last year, he expressed no hope of budget stabilization through spending restraint, instead of warning the state would become a “nuclear waste site” with significant cuts. Last year, Gov. Justice proposed increasing DMV fees hiking the gas tax and turnpike tolls, imposing a gross receipts tax and increasing the sales tax increase. Spending hikes and tax increases comprised the 2017 agenda.

Luckily, legislative gridlock prevented these ideas from reaching fruition. The taxes proposed by the governor would have inhibited net job creation by co-opting private wealth in an effort to “create” jobs preferred by central planners in the government. The artificially created jobs visible to residents would have been exceeded by the number of jobs snuffed out by the taxes and wealth transfers.

While the legislature fought to a standstill on tax increases and economic “development” proposals, the economy, particularly the coal industry, had a surprisingly good year. The unexpected growth helped close the budget gap. Indeed, while state lawmakers did very little to the tax structure of West Virginia—a positive contrast to the governor’s proposed tax increases—the people of West Virginia lifted the state out of the hole by the sweat of their collective brow.

In a complete reversal from the previous year, the governor called for the elimination of taxes on manufacturing machinery, equipment, and inventory. Ideally, tax reform would be focused on reducing rates and broadening the base. However, eliminating taxes on the production process is a laudable goal in order to properly define the correct tax base and avoid taxes on business to business transactions.

Federal regulatory reform, optimism surrounding promised federal tax reform, and avoidance of state tax hikes contributed to a modest improvement in West Virginia’s economy this past year. Surprisingly, the governor failed to mention a major advancement in the business climate: West Virginia joined the ranks of right-to-work states in 2017. But much work remains. For instance, the state’s tort system is ranked worst in the nation. Tax hikes over the past few years are the tenth worst in the nation. The overall business climate lags most of the nation. Thankfully, if lawmakers expand on the pro-growth theme of lower taxes embodied in the governor’s Just Cut Taxes And Win Act, long-term improvement lies within sight.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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