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Hoppy’s Commentary for Tuesday

Republican gubernatorial candidate Bill Maloney caused a stir last week when, during an interview on Talkline, he said, “If we’d fix our courts and our tort reform issues, we’d stand a lot better chance of getting a (ethane) cracker than we would be in passing a huge bill that we just pull down our pants to get a cracker, when everybody should be getting the same tax breaks.”



Naturally, it was the pants down reference that got all the attention, and lost in the kerfuffle was any meaningful discussion about a key element of Maloney’s remark: should everybody be getting the same tax breaks?

The bill, approved by the Legislature and signed by Tomblin, would allow the cracker to be assessed at the lower salvage rate, thus avoiding millions of dollars in property taxes.  The legislation was written specifically for a company that invests at least $2 billion to build a cracker plant.

As it turns out, Shell Chemical picked Pennsylvania over West Virginia and Ohio.  Each state had its own incentive package that included tax breaks.

Many West Virginia leaders hope they will have more success with another significant and specific tax break approved last Friday. This one will give a tax credit of up to $20 million a year to coal companies that sell coal to the utility that provides electricity to Century Aluminum’s Ravenswood plant. The intent is to hold down electric costs so Century can reopen the plant and put more than 400 people back to work. 

These and other credits create a conundrum for public policy makers: should the state try to pick economic winners and losers?  Is it fair to create a credit for one business that similar businesses cannot use?  Would a credit, like the one crafted for the cracker, deny government the money to pay for more services that would be needed with the industrial development? 

The Governor’s Commission on Fair Taxation briefly dealt with the tax credit issue in its 1999 report.  “Tax credits do not embody the values of neutrality and consistency,” the report said.  While some argue they are absolutely necessary for economic growth, “others contend that lowering of business taxes across the board would negate the need for tax credits.”

Fortunately, West Virginia has moved away from handing out tax credits like they were campaign trinkets, but by my count we still have about two dozen.  They include credits for tourism development, the film industry, coal loading docks, solar energy and alternative fuels, just to name a few. 

Meanwhile, the state has made some progress in general tax reform by lowering the corporate net tax, phasing out the business franchise tax and eliminating several anti-capital taxes.

It makes better economic sense to have a fair and equitable tax system that entices businesses to open here, stay in business and expand, without having any special carve-outs from the state. 

And that’s what Maloney is calling for, along with tort reform.  

In the meantime, however, I have some empathy for Tomblin and other state leaders who engage in manipulating the state tax code to try to land a cracker plant or reopen the Century Aluminum plant in Ravenswood.

Who among us would refuse to do that?

Purity of economic philosophy is a luxury of academics and radio talk show hosts.  In practice, however, politicians and policy makers are always tempted by actions they hope will pay immediate benefits.





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