“The definition of insanity is doing the same thing over and over again and expecting different results.”
— Albert Einstein
One of the significant aspects of American government is the ability of individual states to implement most of the policies which govern day to day affairs of its citizens. And each state’s policies vary to the needs and wants of the people living there. Of course, factors like geography, economics, and various cultural aspects create different ways of living from one region to the next.
These ‘laboratories of democracy’ allow states to experiment with various laws and policies, and if the policy works, other states tend to follow. However, a failed experiment allows other states to learn from the failures of others. Unless you are from West Virginia.
In the 2020 Elections, West Virginia grew a much deeper shade of red, where Republicans now possess supermajorities in both houses of the state legislature along with a Republican governor (presuming Jim Justice doesn’t pull another switch). Why is this relevant? Because the West Virginia GOP plans to repeat a failed experiment.
Republicans across the nation have argued the best way to foster economic growth comes through ‘supply-side economics.’ In this model, government should cut taxes and reduce the number of business regulations to spur economic growth. When wealthier individuals and businesses do not have an obligation to pay as much in taxes, they will use that money to invest in their business and employees. In theory, these low tax rates and reduced regulations will also act as a magnet for additional population. The tax revenues per person would not necessarily be as much, but losses would be offset by the additional population and increased job growth.
After the 2012 Elections, Kansas Republicans had a 31-9 majority in their state senate and a 90-35 advantage in their state house of representatives. Newly elected Governor Sam Brownback completed the trifecta sweep for the GOP and they intended to use their strong numbers to implement radical changes based on supply-side economics.
At the heart of the GOP plans was Kansas Senate Bill Substitute HB 2117, which dramatically reduced the state income tax and other taxes associated with businesses. Brownback concluded this reduction in taxes would be “like a shot of adrenaline into the heart of the Kansas economy.”
The governor relied heavily on supporters such as anti-tax guru Grover Norquist and supply-side advocate Arthur Laffer (both Ronald Reagan disciples). Brownback’s tax cuts were also aided by the American Legislative Exchange Council (ALEC), who provided the ‘model legislation’ for HB 2117. (Side note: West Virginian educators are all too familiar with ALEC.)
Brownback and the GOP dominated legislature predicted thousands of jobs, growth in GDP, and more investment in Kansas. He noted, “We’ll have a real live experiment.” The experiment failed. Within five years, the Kansas Legislature would reverse these tax cuts.
What happened in Kansas when they dabbled in the supply-side?
The additional revenue never materialized, which led to massive budget problems. In 2014, the first full year of its implementation, the tax cuts blew a $700 million hole in the budget. Budget deficits occurred each year, with the state government dipping into reserve funds to meet financial obligations. Kansas officials also made draconian cuts to the budget.
Construction and road projects were stalled, pension contributions dropped, Medicaid suffered, and public education losses were so dramatic, the school-funding policy had to be changed. Additionally, school consolidations occurred to help offset the budget cuts. Considering that education made up approximately half of Kansas’ budget, public education suffered the brunt of the losses. This doesn’t even address the downgrading of bonds, and missed payments by the state.
By 2017, the Kansas Legislature faced a potential budget shortfall of $900 million, and not even they could stomach another year of Brownback’s policies. When they rescinded his tax cuts, Brownback doubled down and vetoed the bill, leading to the legislature overriding his veto and taking tax rates back to the pre-2012 rates. The Kansas Senate voted to repeal tax cuts by a vote of 38-0 and the Kansas House concurred with a vote of 123-2. Oh, and those jobs and growth in GDP? Kansas lagged behind all the states who bordered it.
West Virginia is now attempting to repeat the same failed experiment as Kansas. Why? Because insanity pervades in the legislature, dominated by Republicans who maintain that a supermajority in both houses of the legislature mean they are free to conduct an economic experiment that will cripple an already poor state.
In the West Virginia House of Delegates, Republicans hold a 77-23 advantage, and in the West Virginia Senate, they hold a 23-11 majority. Governor, and sometimes buffoon, Jim Justice is also a Republican, meaning the state GOP is submitting an aggressive agenda for the 2021 legislative session.
What do they hope to achieve?
At the heart of the GOP plan is the reduction and ultimately the elimination of the state income tax. The initial proposal, as outlined by Governor Jim Justice in his state of the state address, would cut the income tax by approximately one half for all citizens except for the “super highest earners,” who would see a reduction by about one-third. Republican leadership has also expressed strong interest in reducing the business inventory tax.
The GOP plan would differ from Kansas in one significant way. The West Virginia GOP wants to offset tax revenue losses by raising sales taxes, excise taxes, and reinstating the food tax. Currently, the state income tax accounts for approximately 43% of the state’s $4.6 billion budget. That’s quite a bit of offsetting that the state needs if they plan to cut the income tax.
Republican leadership’s success or failure in this tax plan will hinge on bold predictions, including the low tax rates as a magnet for businesses and additional population. Supporters of the GOP plans believe these measures could increase the state’s population by 500,000 over the next 10 years. This is an eye-opening proposition, considering our population hovers around 1.8 million. Has any state ever increased its population by 30% through changes in tax policy?
Why is this a problem?
1. These tax cuts shift the burden of state funding from the wealthy to middle-class and poor. West Virginia’s current income tax is a progressive tax, which means rates increase as income increases. The lowest bracket taxes individuals at 3% of income with the maximum bracket taxing earners at 6.5% of their income.
Let’s examine two scenarios. A person earning $100,000 annually would pay 6.5%, or $6,500 to the state. An individual earning $20,000 would pay 4%, or $800. If the state eliminated the income tax, each one would keep that money. Sounds great in principle, right? Not when you consider that West Virginians with low incomes strongly benefit from the tax dollars of wealthier citizens. Eliminating the income tax lets you keep more income in the short term, but a variety of social programs which help the most vulnerable people will suffer. The individual who keeps the extra 6.5% benefits because they still have their money and they lose no government services. The other citizen keeps their additional 4% but they lose important services.
The taxes which the GOP wants to increase, however, will be absorbed by lower and middle income West Virginians. These citizens will have to pay the same taxes on food and other products. Taxes on tobacco, gas, or other excises disproportionately affect low-income citizens. Everyone eats and uses fuel. Those who do not earn high incomes can least afford to devote more money towards necessities. This knowingly puts a greater strain on the people with fewest financial resources.
2. These plans would blow a hole in the budget. In 2020, West Virginia spent approximately $4.6 billion dollars, and nearly $2 billion came directly from the state income tax. Eliminating the income tax means finding additional revenue or making severe budget cuts.
Presuming the GOP follows through and raises sales tax, and food tax, this will not generate the necessary revenue needed to balance the budget. According to a recent article by Sean O’Leary, a Senior Analyst at the West Virginia Center on Budget & Policy, these potential tax increases would only make up for $1.16 billion. This would leave an additional $1 billion hole in the budget.
To balance West Virginia’s budget would mean austere cuts to a number of programs that have long benefitted West Virginians. If the budget faced cuts of the projected magnitude, public education stands to lose the most. The Republican Party has considered a number of cuts already, including:
- A general cut to the State Department of Education (rumored to be approximately 20%)
- Reduction in the arts and humanities programs as enrichment for students
- Dramatic cuts or elimination of subsidies to public colleges, universities, and the Higher Education Policy Commission
- The elimination of the PROMISE Scholarship program
Education (including higher education) accounts for more than half of all spending by West Virginia. The investment into this area of life unlocks opportunities for citizens. For the state government to divest itself from education will prevent West Virginians from escaping poverty and from remaining in the state.
The elimination of the PROMISE Scholarship is particularly cruel, when an entire generation of young West Virginians have been told that if they meet certain academic expectations, the state would provide for their college tuition. You are living under a rock if you do not believe that this program keeps good young people in this state.
Taking funding away from education ultimately hurts children and the future of this state.
3. These cuts are a big risk. Supply-side economics works under a dangerous presumption. The thought is that if people retain more of their money instead of paying it in taxes, they will spend that money or invest it. This is a serious gamble for West Virginia, and one that is unlikely to pay off. The members of the legislature and most governments generally have incomes and wealth beyond that of their constituents. Yet, the ordinary citizens of West Virginia must live with the consequences of bad policy.
In the past, West Virginia has attempted to entice businesses and various industries with tax credits, and these have not had the desired effect. I wish this was different. There is no guarantee that tax credits or lowered rates will draw the massive number of businesses or startups which the Republicans are gambling on.
4. Finally, the proposed tax cuts ignore the lessons of history. Kansas tried the same type of program not even a decade ago, but West Virginia refuses to acknowledge a grievous mistake. This kind of hubris will create an even more severe economy for a state already near the bottom of the nation.
When this experiment fails, the GOP will not accept responsibility. They will attempt to explain it away — that the liberal media refused to report on hidden successes, or that we simply needed to give the state more time to develop.
So, why is the Republican Party doing this?
To answer this question requires a degree of speculation. The Republican Party has developed a stranglehold on West Virginia politics since 2014, but they understand that maintaining power means delivering something to the people. The GOP is very aware that they cannot continue blaming Democrats for the economic woes of West Virginia. At some point, voters will tire of their policies if they cannot at least ‘move the needle.’ To some extent, this is about maintaining the power they sought to wrest from Democrats for a long time. And that’s part of the game of politics.
Another reason, albeit it cynical, is the fact that wealthy donors, lobbyists, and business owners will benefit from the tax cuts. Those people who serve in the state legislature are often elected with the help of financial backing. Those who invest in the political careers of lawmakers want to see a return on that investment. Donating to political campaigns is tax deductible and policy results such as deep tax cuts mean that those who can afford to donate to politicians will benefit.
While I doubt many wealthy people sit at home and secretly plot how to keep the middle and lower classes in their respective positions, I do believe these tax cuts will contribute to a system that allows wealthier people to maintain that wealth and power. It is inadvertent, at best, and sinister, at its worst.
I am certain that some members of the legislature genuinely believe they are doing the right thing for West Virginia. The mentality of the ‘American Dream’ still looms large for Republicans who believe grit, determination, and hard work brings financial success in this nation. They take the position that those who earn high incomes should not be penalized with high rates in taxes.
Though I believe social mobility exists in this country as much as any other, I do not know that Republicans understand the level of nuance or obstacles which some citizens face in their efforts to escape poverty. The most extreme ideologues (conservatives and liberals) in our nation tend to see simplistic answers for complex problems and the world does not operate in this manner. We are seeing this manifest itself in West Virginia, where Republicans look at the tax cuts as the solution to our economic woes. This ignores decades of problems within our own economics (like a failure to diversify) and cultural norms that seem rooted in the most illogical acts (such as shunning higher education).