West Virginia shows promise on taxes

The non-partisan Tax Foundation has released its annual State Business Tax Climate Index and the news for West Virginia is encouraging.  Our state has the 21st best tax climate in the country.

That ranks West Virginia ahead of all contiguous states.  Pennsylvania is 34th, Virginia 27th, Kentucky 26th, Ohio 44th and Maryland 40th.

The Tax Foundation makes its determination based on 100 tax variables in five different categories: corporate, individual income, sales, property and unemployment insurance taxes.  “States are punished for overly complex, burdensome, and economically harmful tax codes, but are rewarded for transparent and neutral tax codes that do not distort business decisions.

West Virginia’s best ranking came in corporate taxes—17th.   Our corporate rate has dropped from 8.5 percent in 2011—one of the highest in the country—to 6.5 percent. The reduction was tied to the overall health of the state’s economy, which the Foundation determined was a wise move.

“We actually mentioned this in the report as being an example of good policy,” Tax Foundation Economist and Manager of State Projects Scott Drenker said.

The decline of the corporate tax rate, the elimination of the business franchise tax, and the economic boom associated with the gas industry, have combined to improve West Virginia’s economic standing.  According to the federal Bureau of Economic Analysis, West Virginia’s real GDP growth in 2013 was 5.1 percent, higher than any of our neighboring states.

States with the worst business tax climate scores also had slow, if any, growth.   Tax-heavy New Jersey, which the Foundation rated as the least competitive state, had a real GDP growth of 1.1 percent.  New York, which was right behind New Jersey, grew less than one percent.   Neighboring Maryland comes in at 40th and its economy actually contracted last year.

Conversely, the Tax Foundation ranks Wyoming as having the best tax climate in the country and its GDP grew at an impressive rate of 7.6 percent last year.  Notably, Wyoming does not have a corporate or individual income tax.

Taxes are necessary to pay for services citizens need and desire, but progressives constantly get hung up on whether businesses and successful individuals are paying their “fair share,” thus ignoring the prosperity that comes with economic growth.

As the Wall Street Journal opined, “Tax climate isn’t the only determinant of state prosperity.  Regulation also matters, as do human capital and natural resources like Wyoming’s oil and gas. But the latter are more likely to reach their potential in states with low tax rates.”

That should be the question West Virginia policy makers are asking:  Is our state reaching its economic potential, and if not, what tax policy changes can we make to ensure that we do?



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