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A steady hand, consistent plan needed to grow economy

From The Exponent Telegram:
It’s all over the place.

That would be the best way to explain how our leaders in Charleston — and Washington, D.C., for that matter — are approaching budget issues and attempts to stimulate the economy.

With Republicans in control in D.C. — and mostly in control in Charleston — one would think there would be a strong push for fiscally conservative budgets, with a combination of funding cuts and perhaps small tax increases or changes to shore up revenue.

In West Virginia, what we’re seeing is a Democratic governor, Jim Justice, proposing $450 million in tax increases with about $26 million in cuts.

Republicans obviously don’t like those ideas, but they appear to have little agreement on their plan, with proposals ranging from eliminating the state income tax and replacing it with a significantly increased sales tax, to no tax increases but no clear plan on where $500 million in cuts will be made.

Inside the Beltway, there’s talk of serious tax reform, with Democrats fearful that will just translate into tax breaks for the wealthy and an undue burden on the middle class and poor. It’s the age-old class warfare argument, but unfortunately the Republicans don’t have a clear plan that points to success, with some talk they’re also focusing on eliminating or drastically cutting the income tax and replacing it with a national sales tax.

Here’s what we do know: There are plenty of studies out there that say eliminating the income tax works in places with heavy tourism travel, like Florida and Tennessee. That’s because there are millions of folks visiting, spending big money. So the tax burden is passed on to those who don’t live there.

That wouldn’t be the case in West Virginia, at least right now.

We love Gov. Justice’s claims to want to push tourism and his talk of a “Dollywood” for West Virginia. Now we just need Dolly Parton to figure out she’s really from West Virginia or for Brad Paisley to fall in love with the concept of “Paisleywood.”

Seriously, though, Justice’s goal is admirable. And there is much West Virginia has to offer. But it’s not going to happen overnight.

And to propose eliminating the income tax at this point is irresponsible and plays only to the fringe, not to the greater majority, in these economic times.

Proponents like to say that eliminating the income tax will spur growth, but there is little evidence of that unless there are other means to balance the budget.

In fact, a 2014 study by the Brookings Institute that considered tax reform at the federal level indicates there is a risk of greater deficits unless tax cuts are balanced with spending cuts.

In the study, co-authors William G. Gale of the Brookings Institution and Tax Policy Center and Andrew A. Samwick of Dartmouth College and the National Bureau of Economic Research, surmise:

“The structure and financing of a tax change are critical to achieving economic growth. Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts, they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates.”

Obviously, similar cuts on the state level would have similar effects on the state budget, which in West Virginia is already in dire straits. The state’s financial situation is bleak, and any delay in finding solutions during this legislative session will exacerbate the situation.

The study went on to point out:

“The results suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing subsidies, avoid windfall gains and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.”

We’re also greatly concerned about how the state’s economy, as well as leadership’s lack of a clear plan, is creating financial fear and confusion among businesses and residents.

Let’s face it: When leaders talk of increased taxes on businesses and individuals, the first reaction by most will be to curtail spending. Businesses will also table plans or consideration of expansion projects if they think they are going to be hit with more taxes.

We don’t need that in West Virginia. We need growth. We need new businesses. We need jobs.

So it’s up to our leaders in Charleston to find common ground on a plan that will do just that — one that will begin to address revenue shortfalls and a bloated government.

Gov. Justice, in his proposed budget, touched on what needs to happen.

“In order to begin healing our economic woes and establishing a pattern of growth, a combination of cuts and revenue enhancements are needed to ensure that we are investing in our future with programs that create jobs.

“… West Virginia has so much going for it: Our natural beauty, our God-given resources, our prime location and, most of all, our people.

“It’s time we claim our place; we will no longer be 50th. Getting our fiscal house in order demands teamwork, but I know we can find common ground as we make West Virginia a shining star.”

We agree. But $450 million in tax increases, including some that have never been tried or proven successful across the country, just isn’t the right path.

Our leaders in Charleston need to get to work to find responsible cuts and sensible revenue increases.

West Virginia needs a steady hand and a consistent plan to right what is wrong. Right now, neither is apparent.

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