Eliminating the Personal Property Tax Part 7 – Little Evidence for Job Growth

(Continued from Part 6 – published 1/22/2013)

Raising real property taxes or the sales tax aren’t the only ways to offset the losses from eliminating the personal property tax in West Virginia. For example, last year’s H.B. 4473 called for using the proceeds from the proposed future fund to reduce the personal property tax burden on businesses. Advocates for the approach claim that reducing or eliminating the personal property tax would result in rapid job growth. But is there any evidence for that claim?

First, it’s worth noting that, even with the personal property tax, overall, West Virginia has a very low property tax burden. Among the 50 states, West Virginia ranks 42 for property taxes as a percent of personal income, and 44th for property taxes per capita. And of the 13 states that do not tax personal property, only one, Delaware, ranks lower than West Virginia.

Even when considering personal property heavy businesses like manufacturing, West Virginia doesn’t come out that bad. According to a study from the Minnesota Taxpayer’s Association and the Lincoln Institute of Land Policy, for manufacturers located in an urban area with half their property value coming from personal property, West Virginia’s effective property tax rate ranked 18th, behind five states that do not tax personal property. The takeaway here? West Virginia’s extraordinarily low real property tax more than makes up for its personal property tax.

As for the claims about job growth, the evidence just isn’t there. Since the end of the recession, there has been no statistically significant difference between average job growth in the states with taxes on personal property and those without.

  States with PPT States without PPT
Average Job Growth Since End of Recession 2.0% 2.9%
Variance 0.00035 0.00147
Hypothesized Difference 0  
t statistic 0.74  
alpha level 0.05  
p value 0.47  

The same is true if you focus on manufacturing employment, this time looking at growth during the most recent national expansion in manufacturing employment. Once again, there was not statistically significant difference in job growth between states with taxes on personal property and states without.

  States with PPT States without PPT
Average Manufacturing Job Growth (1/10 – 3/12) 3.6% 3.9%
Variance 0.0013 0.0032
Hypothesized Difference 0  
t statistic -0.1823  
alpha level 0.05  
p value 0.86  

With that in mind, it is unsurprising that Ohio has not experienced rapid job growth since it began to phase out its personal property tax in 2005. As the chart below shows, job growth remained flat in Ohio once the tax began its phase out, despite job growth growing nationally. And since the end of the recession, Ohio’s job growth has slightly lagged behind the national average. There is almost nothing to suggest that Ohio’s elimination of its personal property tax resulted in increased job growth.

All of this shouldn’t be a surprise for those who value evidence. And the evidence suggests that business taxes don’t have all that much of an effect on state employment and economic growth for a variety of reasons.

Budget Beat – February 1, 2013

WVCBP in the News

The Charleston Daily Mail’s article about how nearly half of all West Virginian’s don’t have a savings safety net included quotes from WVCBP staff and board members and capped off a week of discussion about the status of low-income families in West Virginia. West Virginia Public News Service also covered the issue this week in a story including quotes from WVCBP Policy Analyst Stuart Frazier on the number of West Virginians who depend on low-paying jobs.

To help families save for those rainy days, West Virginia could eliminate the asset test it requires when low-income families apply for financial assistance. This has been an idea long-supported by the WVCBP and one covered in a Charleston Gazette article this week.

Low-Income West Virginians Paying More Than Their Share

Helping to bring the topic of poverty to the headlines this week was the coreleased report on Wednesday with the Institute on Taxation and Economic Policy (ITEP) and the WVCBP called “Who Pays?” The graph below, from ITEP’s report, shows how low- and middle-income families are paying more than wealthier families in state and local taxes in West Virginia.


Blog Wrap-Up

West Virginia ranks highly in terms of home ownership but this might not be as good as it sounds. Ted’s blog post this week gives the whole story.

Education reform is on Governor Tomblin’s to-do list for the upcoming legislative session. There are ways to improve the system go beyond audits and saving money through program cuts. Read about three of them in Sean’s blog post.

Speaking of education, what about higher ed and West Virginia’s support of students seeking college degrees? Unfortunately, over the past 10 years, even though tuition has gone up and enrollment has risen, West Virginia’s support to higher education has decreased. The result has been a larger debt for the state’s college graduates. With a week that saw students speaking out against proposed cuts, hopefully lawmakers will decide against further cut-backs as they take up the governor’s legislative agenda. Read more in Sean’s blog post