Revised GOP Senate Tax Plan Gets Worse for West Virginia

The Senate Finance Committee has amended the GOP tax bill, making significant changes to the bill, including the repeal of the individual mandate from the Affordable Care Act.

The legislation is described as tax reform but would cut hundreds of billions of dollars in health care spending. The provision recently added to the legislation to repeal the Affordable Care Act’s individual mandate would result in 13 million fewer people obtaining health insurance and a 10 percent increase in premiums for people in the non-group health insurance market, according to the Congressional Budget Office.

The rest of the bill includes permanent provisions to raise taxes, permanent provisions to cut taxes on corporations, and temporary provisions to cut taxes on individuals that expire after 2025.

According to the Institute on Taxation and Economic Policy, West Virginia would be one of nineteen states facing an aggregate increase in federal taxes by 2027, in large part due to the loss of health insurance premium tax credits because of the repeal of the health insurance mandate under the bill. Overall West Virginians would be paying $6.9 million more in federal taxes in 2027 under the bill compared to current law.

The tax bill as amended by the Senate Finance Committee would raise taxes on 25 percent of West Virginians, with lower and middle income taxpayers in West Virginia more likely to face a tax increase. Among the bottom three-fifths of income-earners, 26 percent would pay higher taxes in 2027.

 

In 2027, the richest 1 percent of West Virginians would receive an average tax cut of $2,700 while the bottom three-fifths of West Virginians would receive an average tax increase of $70.

 

More so than any of the previous versions of the bill, the latest tax plan is a clear tax shift, raising taxes on low and middle income families, in order to pay for tax cuts for the rich.

 

 

 

Debunking Tax Reform Myths – UPDATED 12/1/2017

Myth 1: Tax reform will pay for itself.

One of the most persistent myths about tax cuts is that they can boost the economy enough to offset their costs. In other words, tax cuts pay for themselves, adding to neither federal deficits or debt. Claims about the current GOP tax reform go even further, claiming that the tax plan would generate enough economic growth to more than offset its cost. According to Treasury Secretary Steven Mnuchin, the tax plan, “will not only pay for itself, but it will pay down debt” and generate $2 trillion in additional revenue, reducing federal deficits by $1 trillion.

The vast majority of economists disagree, instead predicting that cutting taxes by $1.5 trillion will in fact increase the federal deficit. The claim that tax cuts pay for themselves, or in this case, more than pay for themselves, is not supported by the evidence. According to the Congressional Budget Office, under the most optimistic projections, roughly 32 percent of a 10 percent  income tax cut can be offset by additional tax revenue over ten years. For Secretary Mnuchin’s claim to be correct, that 32 percent would have to increase to 166 percent under the GOP tax plan.

Myth 2: The tax plan is a “major, major” tax cut for the middle class.

From the President on down to local legislators, proponents of the GOP tax plan have been claiming that tax cuts for the middle-class are the primary feature of the tax plan. Many of the provisions of the tax plan that would benefit the middle-class, such as the increase in the standard deduction, are offset by other provisions, like eliminating the personal deduction and raising the bottom bracket’s rate. Other provisions, like the expansion the child tax credit, appear on the surface to be geared toward working families, but actually provide little benefit.

Overall, both the House and Senate versions of the tax plan heavily favor the wealthy. According to the Institute on Taxation and Economic Policy, the wealthiest one percent of Americans would receive 26 percent of the benefits of the Senate’s plan, and 48 percent of the benefits of the House’s tax plan, while the middle 20 percent of taxpayers would only receive around 10 percent of the benefits under both plans.

Analysis from both the Joint Committee on Taxation and the Tax Policy Foundation confirm that the tax reform plans favor the wealthy, even in West Virginia.

Under the Senate’s plan, the top one percent would receive a average tax cut as a share of income of 1.7 percent, worth an average of $43,300, while the House’s plan gives the top one percent a tax cut of 2.5 percent or $64,720. In contrast, the middle 20 percent’s tax cut under the Senate plan is only 1.1 percent, or $77o, and just 0.6 percent or $460 under the House’s plan.

Some of the provisions in the House bill that benefit the middle-class — like lower tax rates and fewer brackets, an increased standard deduction, and a $300 tax credit for each adult in a household — are designed to expire or become less generous over time. Other provisions that benefit the wealthy, such as the reduction and eventual repeal of the estate tax, become more generous over time. The result is that by 2027, the benefits of the House bill become increasingly generous for the richest one percent compared to other income groups.

Myth 3: Cutting corporate taxes will give the average household a $4,000 pay raise.

Both President Trump and House Speaker Paul Ryan have claimed the the GOP proposals to cut corporate taxes will give the average American household a $4,000 pay raise, pointing to an analysis from the President’s Council of Economic Advisers (CEA). The analysis relies on the assumption that nearly all of the corporate income tax is paid by workers, so that any cuts in the corporate income tax would directly result in pay increases.

While it is agreed that some of the corporate income tax is paid by workers, the broad consensus of economists says that workers pay a much smaller share of corporate taxes than what the CEA is claiming. The CEA analysis claims that a $200 billion cut in the corporate income tax would increase wages by $500 billion, implying that 250 percent of the corporate income tax falls on workers, which is almost comically outside the plausibly acceptable ranges. For example, the Treasury Department estimates that 18 percent of the corporate income tax falls on workers, the Tax Policy Center estimates 20 percent, and the CBO estimates 25 percent. Secretary Mnuchin’s claim that 70 percent of corporate taxes are paid by workers is more plausible, but still well outside the mainstream consensus.

Most evidence shows that most of the benefits of a corporate rate cut goes to the owners of corporate and other types of capital — not workers. Whatever share of a corporate rate cut eventually flows to workers would likely do so in proportion to their share of total wage and salary income. And since labor income is concentrated among high earners such as highly paid executives, lawyers, and other professionals, most of the benefits would go to them. According to the Tax Policy Center, the top one percent would receive 34 percent of the benefits of cutting the corporate tax rate, and the top 20 percent would receive 70 percent of the total benefits.

Myth 4: It’s a tax cut for everybody

Proponents of the GOP tax plan have repeatedly claimed that the plan will help all taxpayers. House Speaker Paul Ryan has repeated this claim  in a series of interviews, stating, “It’s a tax cut for everybody… every single person, every rate payer, every bracket person gets a rate cut.”

In fact, under the House bill, 18 percent of households would face a tax increase by 2027, including households at every income level. For the middle 20 percent, 21 percent of households would see an increase in their taxes by 2027. This would occur because several provisions in the bill raise revenue by repealing or limiting tax breaks that benefit the middle-class, and for some households the loss of these tax breaks would not be offset by the new tax breaks introduced in the bill.

Under the Senate bill, 13 percent of taxpayers would pay more by 2027, again including households at every income level. For high-income taxpayers, whether the Senate plan results in a tax increase or tax cut also has to do with the type of income he or she has. The plan’s reduction in the corporate income tax rate is likely to benefit particularly those who own corporate stocks. Those who own a part of a business that does not pay the corporate income tax (often called a pass-through business) would benefit from the plan’s deduction for that type of business income. Taxpayers who do not own corporate stocks and earn all or most of their income as wages are less likely to see a net tax cut.

Myth 5: Tax Cuts will Significantly Boost the Economy

One of the main talking points about the the GOP tax reform plan, and every other tax cut, is that tax cuts will unleash the economy, leading to a new era of economic growth and prosperity. President Trump has claimed that that tax reform could lead the economy to grow at more than 6 percent per year, more than triple the forecasted rate of 1.8 percent.

Here in West Virginia, we’ve been told that the tax cuts, that again, mainly benefit the wealthy, could “rejuvenate West Virginia’s economy,” that it is a “once-in-a-generation opportunity” to spur economic growth, and that we need to get tax cuts “passed as soon as possible to grow the American economy.

West Virginians know that even major tax cuts don’t necessarily lead to economic growth. But the idea that tax cuts will boost the economy isn’t just a myth for West Virginia, it’s a myth for federal tax cuts as well. Tax cuts in the past quarter century have consistently failed to significantly boost the economy, create jobs, and increase middle-class incomes. And not only did federal tax cuts fail to create growth, tax increases didn’t have any negative effect.

The lack of evidence for tax cuts boosting growth helps explain why the Trump administration and its allies have struggled to find any credible economic model to support their claims. Even the analysis from the tax-cut friendly Tax Foundation falls short of the claims that economic growth from the tax cuts will be outstanding enough to offset its cost. But even then, the optimistic projections from the Tax Foundation are substantially flawed, and those flaws are causing the analysis to substantially overstate the effect on GDP.

Myth 6: Small Businesses will Receive Huge Tax Cuts

Just as advocates have claimed that the tax cuts in the GOP tax reform plans are primarily geared toward the middle-class, they have also claimed that the business tax cuts in the bill will benefit small businesses. And like the middle-class claim, the small business claim is largely a myth.

In addition to reducing the corporate income tax rate from 35 percent to 20 percent, the plans also create a new “pass-through” rate of 25 percent. Pass-through income is income from businesses such as partnerships, S corporations, and sole proprietorships that business owners claim on their individual tax returns and that’s taxed at the same rates as wages and salaries. So instead of paying the top personal income tax rate of 39.6 percent, business with pass-through income would pay 25 percent.

And as it turns out, most pass-through income flows to the very highest-income people, and from very large businesses. The top 1 percent of filers reap more than half of all pass-through income. Very few small businesses would benefit from this new rate.

In fact, the National Federation of Independent Businesses has come out against the bill, saying in a statement that, “This bill leaves too many small businesses behind. We are concerned that the pass-through provision does not help most small businesses.

 

***UPDATE 12/1/2017***

Earlier this week, the Joint Committee on Taxation (JCT), a nonpartisan committee of the United States Congress that acts as a scorekeeper for Congress, released two reports on the Senate tax plan that officially debunk two of it’s major myths. First, the committee released a report on the distributional analysis of the tax plan, which debunked the claim that everyone would get a tax cut under the tax plan. According to the official analysis, the plan would raise taxes on 8.1% of taxpayers in its first year, while providing only minimal tax cuts to 30.2% of taxpayers. By 2027, when certain provisions expire, the plan would raise taxes on 22.9% of taxpayers, while providing only minimal tax cuts to 61.2% of taxpayers. The results are even worse for low and middle income families, who are more likely to see their taxes increase. By 2027, 88% of middle income earners would be left out or have their taxes increased by the Senate’s tax plan.

Next the JCT released a report debunking the claim that the tax plan would pay for itself, not add to the deficit, and actually generate enough revenue to pay down the debt. According to the JCT report, the tax plan would increase federal deficits by a total of $1 trillion, even accounting for economic growth. The deficits top $200 billion/year before the temporary provisions expire.

 

 

Impact of Senate Tax Plan Changes Little From House Plan, Still Overwhelmingly Benefits the Wealthy

The U.S. Senate has released their version of the Tax Cuts and Jobs Act. While the bill has some differences from the version released by the House, its overall affect is largely the same, with the benefits heavily favoring the wealthy. The Senate’s tax bill  would raise taxes on some families while giving large tax cuts to wealthy Americans and foreign investors. In West Virginia, 34 percent of the federal tax cuts would go to the richest five percent of residents, and six percent of households would face a tax increase, once the bill is fully implemented.

Middle-class West Virginians would receive only 10 percent of the benefits of the tax reform by 2027, according to an analysis from the Institute on Taxation and Economic Policy. The middle fifth of West Virginians would receive only half of the benefits going to the top one percent of West Virginians.

While some households at each income level would face a tax increase, the average impact on each income group would be a tax cut. But the average tax cut for the richest one percent of West Virginians — $18,860 in 2019 and $21,390 in 2027 —would be vastly larger than the average tax break for any other group. The middle fifth of income earners in West Virginia would receive an average tax cut of $350 in 2019 and $470 in 2027.

The wealthiest West Virginians aren’t receiving the largest tax cuts simply because they have most of the income. Instead, the tax plan favors them heavily. Even when measured as a share of income, the tax cuts for the richest one percent of West Virginians are more than twice the size of the than the tax cuts for the middle class.

While the average impact of the plan on each income group is a tax cut, some households in each income group would pay higher taxes under the plan. Overall six percent of West Virginians would pay more in taxes. For some income groups the share of taxpayers with a tax increase is higher or lower, one reason for the variation is that state and local taxes  would no longer be deductible on federal tax returns under the Senate plan. This has a significant effect on many middle-income and upper-middle income households in some states.

 

Richest West Virginians Benefit Most from The Tax Cuts and Jobs Act

The House of Representatives has formally introduced its tax reform bill, The Tax Cuts and Jobs Act. The bill, like the tax reform framework it is based on, heavily favors the wealthy. The bill includes some provisions that raise taxes and some that cut taxes, so the net effect for any particular family’s federal tax bill depends on their situation. Some of the provisions that benefit the middle class — like lower tax rates, an increased standard deduction, and a $300 tax credit for each adult in a household — are designed to expire or become less generous over time. Some of the provisions that benefit the wealthy, such as the reduction and eventual repeal of the estate tax, become more generous over time. The result is that by 2027, the benefits of the House bill become increasingly generous for the richest one percent compared to other income groups.

In West Virginia, the middle 20 percent of income-earners, the group that is quite literally the “middle-class,” would receive nine percent of the benefits in the U.S. in 2018 and just seven percent of the benefits in 2027, according to an analysis from the Institute on Taxation and Economic Policy.  In other words, in 2027 the middle fifth of West  Virginians would receive only one fourth of the benefits received by the richest one percent of Americans.

The richest one percent of West Virginians would enjoy an average tax cut of $18,830 in 2018, and this average tax cut would rise to $21,090 in 2027. The middle fifth of income-earners would receive an average tax cut of $450 in 2018, which would fall to $240 in 2027. Only the top one percent of West Virginians would see their tax cut grow over time, for everyone else, the size of the tax cuts shrinks by 2027.

Even when measured as a percentage of income, the richest one percent receive a larger average tax break in 2018 and 2027 than any other income group. In West Virginia, the richest one percent receive an average tax cut equal to about 2.6 percent of their income in 2018 and 2027. The middle fifth of income-earners receive a break equal to 1.1 percent of their income in 2018, falling to just 0.4 percent of their income in 2027. By 2027, the size of the tax cut as a percentage of income is 6.5 times greater for the top one percent than it is for the middle class in West Virginia.

In addition, Some households in every income group would face a tax hike under the bill. For example, in 2018, six percent of West Virginia households in the middle fifth of the income distribution would face a tax hike, rising to nine percent of these households in 2027. This would occur because several provisions in the bill raise revenue by repealing or limiting tax breaks that benefit the middle-class, and for some households the loss of these tax breaks would not be offset by the new tax breaks introduced in the bill.

 

 

WVCBP 10th Anniversary Celebration

Join us as we look back on our first 10 years!

Celebrate with us on December 4 from 6:00 – 8:00 PM at the new Upper Clendenin Lobby of the Charleston Civic Center.

Enjoy food, drink and conversations with your favorite people. Be the first to see our new logo and rebrand for our next decade of fighting for a shared prosperity!

We will honor Senator Jeff Kessler, WV AFL-CIO leader Larry Matheney, our first board president, Steve White, and current board president Renate Pore.

Tickets and sponsorships available here.

 

 

You won’t want to miss our auction with artwork, photography and other items donated by West Virginia artists like this beautiful piece from photographer Betty Rivard.

Register here!

The New “Road to Prosperity” Explained

On October 7th, voters in West Virginia overwhelmingly approved a $1.6 billion general obligation bond to invest in the state’s road system. This is on top of the estimated $500 million in Turnpike Bonds and $500 million in federal GARVEE road bonds that were approved during the special legislative session earlier this year, along with about $130 million in increased State Road Fund revenues to pay for the $1.6 billion “Road to Prosperity” road bond.

The legislature is meeting in a Special Session this week to consider legislation that will address filling vacancies at the WV Department of Transportation and to make changes to the WV Jobs Act – which requires the state to hire at least 75 percent of its workers on state funded public improvements projects ($500,000 or above) from the local labor market.

According to Governor Jim Justice, this unprecedented investment will lead to the creation of an estimated 48,000 jobs in West Virginia. While this could be an enormous opportunity for the state’s short and long-term growth, it is important to put these numbers in context and for people to have a clear understanding of what the impact could be over the next several years. Below, I take a dive into answering some of the important questions surrounding the road bonds and there impact on West Virginia’s economy and fiscal health.

So, how big is $2.6 billion in road construction?

It’s pretty big. Altogether, the state spends about $700 million in state revenues on roads and about $400 million in federal revenues or $1.1 billion. The state revenues come from motor fuel taxes, DMV fees, and the sales tax on vehicles, while federal matching funds come mostly from the federal highway trust fund.So, $2.6 billion is more than double what the state spends each year on roads and four times more than what the state collects in taxes/fees each year in West Virginia. The voters approved $1.6 billion in general obligation bonds is approximately $500 million more than the state spends each year on roads or $900 million more than the state collects in West Virginia in taxes/fees for roads. In 2014, per capita spending on highways was $658 per person  compared to the national average of $508 per person – ranking 14th highest among the 50 states.

While $2.6 billion in additional road spending may be a lot of money, West Virginia’s spending on roads has stagnated over the last decade. West Virginia spends less today compared to the 1980s and 1990s on roads after you adjust for inflation and spending per mile. According to the 2015 report by the WV Blue Ribbon Commission on Highways, West Virginia would need approximately $750 million per year in additional funds to maintain its existing highways system and $1.130 billion annually to provide for expansion of the current highway system. The commission recommended an additional $419 million per year in additional revenues into the State Road Fund.

The $2.6 billion in bonds that have been approved by the legislature (Turnpike/GARVEE) and by the people (General Obligation Bond) this month are planned to be issued over the next four years. The voters approved bond of $1.6 billion will be issued in four increments, $800 million in 2017, $400 million in 2018, and $200 million in 2019 and 2020. The Turnpike and GARVEE bonds will also be issued in increments over the next few years.

Is West Virginia taking on too much debt?

The last general obligation bond constitutional amendment for roads was passed in 1996 at $550 million (Safe Road Amendment). This is about $879 million in today’s dollars. This debt is scheduled to be retired by June 1, 2025. As of June 30, 2017, the state’s total net tax supported debt is $1.521 billion, while the non-tax supported debt from the state’s 20 other bonding authorities (mostly colleges, but includes Turnpike Authority) is $6.249 billion.

According to the West Virginia’s Treasurer’s Office’s 2017 Debt Capacity Report, West Virginia’s net tax supported debt and debt service are currently below the recommended caps or debt ratios for each category that the “municipal bond industry and others use” to analyze a state’s fiscal position.

The debt ratios include net tax supported debt service (principle + interest payments) as a share of the state’s General Revenue Fund and Total Revenues (General Revenue Fund + Lottery Funds + State Road Funds), and net tax supported debt as a share of the Assessed Value of Real/Personal Property, State Personal Income, and net tax supported debt per capita in West Virginia.

The chart below shows the recommended caps (debt ratios) for each of the five categories included in the 2017 Debt Capacity Report along with their projected 2018 debt ratios without the $1.6 billion in tax supported  general obligation bonds that passed earlier this month. Included in the chart is also the estimated debt ratio if you include $1.2 billion of the $1.6 billion (75 percent) in new tax supported general obligation bonds that are scheduled to be issued by 2018 and 75 percent or $97.5 million of the projected $130 million in new dedicated debt service payments that are to be used to pay the new bond debt.

The WV Treasurer’s Office estimates that on June 30, 2018 the total estimated net tax supported debt will be $1.414 billion and the total debt service will be $182.9 million without any additional debt. As you can see from the chart, when you include the additional $1.2 billion in new tax supported debt and $97.5 million in additional debt service payments (based on the WV Treasurer’s Office own projections for each of the five categories) for 2018, the state goes above each of its own recommended debt caps. For example, the recommended per capita cap on net tax supported debt is $1,100. The Treasurer’s Office estimated earlier this year that this number will be $327 below this cap by 2018. However, if you include the more than  the additional $1.2 billion in voter approved general obligation bonds that are scheduled to be sold by 2018 this figures grows to $1,428 or $328 above the state’s own per capita recommended debt cap.

While it is hard to know for sure what impact the additional bond debt will have on the state’s fiscal health, Moody’s Investor Service warned earlier this year that a “significant increase in state’s Net Tax Supported Debt burden…could lead to a downgrade.” As Brad McElhinny pointed out recently at Metro News, the 2017 Debt Capacity Report from the WV Treasurer’s office also warned against the state increasing its debt in the midst of chronic budget gaps:

Although West Virginia is below all of the recommended caps on the ratios examined in this report, that does not provide a license to issue debt. Until West Virginia leaders come up with a comprehensive plan to fix the budget deficits and address declining revenues, debt should only be issued within the recommended ratios to move West Virginia forward and help address its financial issues.

The additional state debt could also hurt the state’s fiscal health if the state is unable to meet its debt service requirement in the future do to declining revenues or if the added cost of maintaining additional roads from new construction squeezes out other budget priorities. When it comes to GARVEEs, it is important to realize that they produce no new revenues and add to debt services costs since they borrow from future federal money – which could diminish the state’s ability to match federal funds in the future.

That said, the benefit of speeding up road projects could result in cost savings, as the rate of construction inflation is higher than the interest rate on most general obligation bonds. This is a way to short-cut inflation.  In addition, if the new roadway spending goes toward rehabilitation projects instead of waiting until the roads are in functional disrepair it can lower future costs.

Where is the $2.6 billion going? 

According to the West Virginia Department of Transportation’s “Road to Prosperity”project list, there are $337.1 million in GARVEE (1&2) bond projects, $370.5 million in Turnpike bond projects, and $2.03 billion in General Obligation Bond projects – a total of $2.736 billion. Of this amount, approximately $1.95 billion (71%) in listed bond projects go toward new construction (e.g. widening lanes, new roads, etc.) while $784 million go toward road repairs, resurfacing, and replacements.

Of the voter approved General Obligation Bonds listed projects (aka Road to Prosperity Amendment), approximately 84 percent or $1.7 billion is planned to go toward new construction while the remaining 16 percent ($328.5 million) is expected to go toward repairs, resurfacing, and replacements. While all of the new GARVEE bonds are expected to go toward existing roads, over two-thirds of Turnpike Bond projects are being used for new construction.

Will the road bonds create 48,000 jobs?

Governor Justice has repeatedly said that the $2.6 billion in new road spending will create “48,000 jobs” in West Virginia. Apparently this number was derived from a 2014 report from Duke University’s Center on Globalization, Governance & Competitiveness. In the report it states that “each $1 billion dollars invested in transportation infrastructure creates 21,671 jobs” or about one job per $41,145 in transportation spending. At $2.6 billion this would equate to over 56,000 jobs or 38,800 jobs at $1.6 billion. While the Governor has been clear that this is an imprecise figure, it is not typically a sound practice to simply apply multipliers that are based on national figures instead of at the state level or from studies that don’t take into consideration a state’s economy and demographics.

It is also important to keep in mind that the projected new jobs are temporary and that the money used to pay the debt service on the bonds will partly come from an increase from regressive fees/taxes that could lower consumer demand in other areas unlike federal spending that can come from deficit spending. The economic impact of the proposed road bonds also depends on several other factors, including the use of local labor and local inputs like raw materials, the portion of the economic benefits that may spill over into neighboring states, the rate of interest on the bond itself, the amount of slack in the local construction market, and whether the investment is targeted where the quality of the roads is bad. While all of these factors – and more – need to be considered before policymakers can make a sound judgment on the number of jobs that will be created, let’s roll with their figures for a minute.

According to the Duke study, over half (57 percent) of the projected jobs per $1 billion spent on transportation are in the construction sector.  If we conservatively say half of the projected 48,000 new jobs will be in the construction industry, than construction employment should conservatively hit 50,000 absent any major declines in sectors within the construction industry. This appears to be a very unlikely scenario, while an additional 5,000 construction jobs – as predicted by Steve White with the Affiliated Construction Trades Foundation – seems like a more probable outcome. As the chart below shows, construction employment is at a 25 year low, with the state down about 9,000 construction jobs since their annual peak in 2006 – so while it appears there could be a lot of slack within the construction industry it is doubtful that it could jump by more than 10,000 jobs within the next few years.

Is this a good investment for the state?

There is little doubt well-targeted investments in transportation infrastructure such as roads create good-paying jobs – especially in the short-run. The long-run impacts, however, are largely determined on whether this investment leads to additional investments from businesses or people and whether the additional new roads will require new revenues in the future to be maintained. Another important consideration is whether the WV Jobs Act  will be enforced, which could determine how much of the $2.6 billion stays in our local economy.

Since the state did not perform a life-cycle benefit-cost analysis (as far as I am aware of) for each of the larger proposed road projects, it is not clear whether the benefits will outweigh the costs over the long-run. A 2010 study by economist Michael Hicks that looked at the impact on small businesses of the Corridor G project that goes from Charleston to Pikeville (KY), found “startling” results that suggest an increase in firm productivity but Hicks warned that the results “should be interpreted with caution.”

Conclusion

The enormous investment provided by the road bonds offers a great opportunity to boost jobs and economic growth in the short-term, but it is unclear what the long-term impact will have on the state’s economic and fiscal health. It will be imperative for the Justice administration to hire as many local workers and utilize as much in-state businesses in the process as possible get the best bang for the buck. Additionally, it will be important for lawmakers to ensure that the additional debt does not lead to another credit downgrade or additional budget austerity that is already hurting our state’s economic position. Lawmakers should also take steps to increase transparency and accountability by ensuring the public knows how the$2.6 billion in road bonds are spent in West Virginia.

 

 

What is West Virginia’s Economic Outlook?

The Bureau of Business and Economic Research at West Virginia University released their annual Economic Outlook Report for the state earlier this month. According to the report’s forecast, West Virginia is expected to experience modest job growth, with employment forecasted to grow at an average rate of 0.7 percent per year for the next five years.  That’s below the projected national average of 0.9 percent per year, and as the report notes, would result in West Virginia not reaching its 2012 level of employment until 2021.

BBER’s employment growth forecast of 0.7 percent is one of the lower forecasts for the state that they have made in recent years. This may be a reflection that past forecasts have consistently been too rosy, with West Virginia under performing. For example, West Virginia is about 50,000 jobs short of where BBER’s 2013 forecast said the state would be in 2017.

The main gist of the report is that after several years of struggling economically compared to the rest of the country, West Virginia is beginning to slowly rebound, but will continue to trail the rest of the country. Notably, the report expects the coal industry to stabilize, and manufacturing employment to grow, but with most of the growth coming from the opening of two major facilities in the eastern panhandle.  The report also notes West Virginia’s demographic challenges, and says that economic development strategies should focus on ways to improve health and education outcomes.

The report does not, however, make any mention of the state’s Right to Work (RTW) law. And while the state’s Right to Work law, passed in 2016, had been on hold, the state Supreme Court ruling putting into effect on September 15th wasn’t a big surprise to its advocates.

It would have taken minimal effort for the BBER to include the impact of RTW in their Economic Outlook. As you may remember, the BBER published an analysis of the economic impact of RTW in 2015 that was funded by the West Virginia legislature. The analysis showed how much RTW would increase the state’s average annual GDP and employment growth, two of the same measures that BBER uses for their Economic Outlook reports. And while their RTW report was criticized for its flawed methodology and unrealistic results, they have stood by its analysis.

But, despite standing by their RTW study’s results, and the fact everyone expected the Supreme Court to hold up the state’s RTW law, BBER did not include it in their analysis, nor did they mention that the Economic Outlook would change substantially once the law went into effect.

For example, BBER’s RTW analysis says that the impact of RTW would add a .056 percent annual increase in annual employment growth. In its Economic Outlook Report, BBER projects that employment growth will average 0.7 percent annually. So now that RTW is law, the state’s average annual employment growth should be 1.26 percent, an 80 percent increase over the original forecast. That translates into an additional 21,000 jobs by 2022.

Not only would including the RTW analysis add 21,000 jobs to West Virginia’s Economic Outlook, it would also show a sharp reversal for West Virginia’s growth compared to the nation. After years of lagging behind national growth, including BBER’s RTW impact would show West Virginia exceeding national growth rates by 40 percent over the next five years.

Including BBER’s RTW analysis completely changes their Economic Outlook report, transforming the story from one about a state whose economy is going to continue to trudge along, to one that is on the verge of an unprecedented economic turnaround. If it makes such a huge difference, why not at least mention it? While the report may have been drafted while the fate of the state’s RTW law was still up in the air, BBER had already done the work and could have easily mentioned its potential effects. And now that RTW is officially law, BBER is still promoting the Economic Outlook that doesn’t include it. And if they did happen to include the impact of RTW in this year’s report, and just forgot to mention it, that means the employment forecast for West Virginia didn’t change from last year, implying either that RTW had no impact, or that West Virginia’s economy went completely south from last year to this year.

If BBER and other advocates of RTW were confident in their promises about the policy, one would think they would be eager to incorporate it into their official Economic Outlook report, and travel the state telling everyone about the tens of thousands of jobs that are coming. But BBER and other RTW fans aren’t very eager to do so. Instead of being transparent and accountable to the claims made to get RTW passed, those claims are being ignored. Is it believable that West Virginia is poised to lead the nation in job growth the next five years? No, but that was the claim made to get RTW passed. And now that it is law, those promises have been forgotten.

The Impact of Federal Funding in West Virginia – Part I

Federal funds play an important role in West Virginia’s economy and make up a vast portion of the revenue the state receives. Historically West Virginia has been provided with a larger share of federal funds per capita than most states. The continued federal support enabled the Mountain State to build up and sustain its programs that assist low- and moderate-income West Virginians, such as Medicaid, the Children’s Health Insurance Program (CHIP), Temporary Assistance for Needy Families (TANF), and many more.

This blog series examines what programs federal funds support, the structure of that federal support, how those funds are administered to facilitate programs,  funding levels and how proposed budget cuts could impact West Virginia. President Trump and Republican congressional leaders have proposed a budget that slashes $2.9 trillion over the next decade from programs that aide low- and moderate-income Americans.

In Fiscal Year 2017, the state received an estimated $5.3 billion from the federal government in appropriations, making up 38 percent of the state’s total revenue. That money was dispensed to state agencies to facilitate health care, education, infrastructure projects, community development, and other programs.

 

Federal funds come into the state in a “match” formula. State government officials first allocate the state’s share and then the federal government allocates its funding based on a matching percentage rate. For instance, if the match rate for a program is 75 percent federal and 25 percent state, then for every dollar the state puts into that program, the federal government will put in three.

 

Health and Human Services make up the largest share of the federal funds in West Virginia due to Medicaid, which brought in $3.4 billion in FY 2017. The rest of the federal funds go toward a variety of programs across the state. West Virginia operates hundreds of federally assisted programs, ranging in cost from a few thousand dollars to billions of dollars. For a complete catalog of federal funds in West Virginia, consult the West Virginia Consolidated Report of Federal Funding in the West Virginia State Budget Office.

The next post in this series will take a deeper dive into non-discretionary programs supported by federal funds.

 

 

 

GOP-Trump Tax Framework Is a Big Tax Cut for the Wealthy, Leaving Little for Everyone Else

The tax framework released last week by President Trump and Republican congressional leaders would result in huge tax cuts for the wealthiest households, while offering little to middle- and lower-income families. In West Virginia, the richest one percent of residents would receive 39.1 percent of the tax cuts within the state under the framework in 2018, according to the Institute on Taxation and Economic Policy. These households, with incomes of at least $358,800, would receive an average tax cut of $27,800 in 2018.

The tax framework largely benefits the wealthy because the plan:

  • creates a lower rate for “pass through income,” creating a tax loophole that mostly benefits millionaires;
  • cuts the top income tax rate for the wealthiest taxpayers;
  • eliminates the estate tax, which only affects the wealthiest 0.2 percent of estates, or couples with estates of $10 million or more;
  • cuts the corporate tax rate, which largely benefits corporate shareholders and senior executives;
  • eliminates the Alternative Minimum Tax, which was designed to ensure high-income earners pay a minimum level of taxes.

The tax plan would particularly benefit those with incomes greater than $1 million. These households make up just 0.1 percent of West Virginia’s population but would receive 22 percent of the tax cuts if the plan was in effect next year. Those with incomes over a million dollars would receive an average tax cut of $178,900 in 2018 alone.

In contrast, the middle class would not see much benefit from the tax plan. The middle fifth of households in West Virginia, people who are literally the state’s “middle-class,” would receive just 7.3 percent of the tax cuts that go to West Virginia under the framework. In 2018 this group is projected to earn between $33,500 and $52,700. The framework would cut their taxes by an average of just $260.

If the framework was in effect in 2018, 8.4 percent of of West Virginia households would actually see a tax increase. While the tax framework increases the standard deduction, it repeals the personal exemption and most itemized deductions. This means that families who itemize their deductions instead of claiming the standard deduction may end up paying more in taxes under the plan.

Unlike the clear and concrete proposals that benefit the wealthiest taxpayers, the GOP-Trump tax framework is much more vague about the changes that would affect low- and middle-income people. The provisions that may benefit the middle class, such as the increased standard deduction and changes to the Child Tax Credit, are offset by other provisions, like raising the bottom income tax rate from 10 percent to 12 percent and repealing personal exemptions. The plan also leaves out key details of the Child Tax Credit changes. Additionally, the plan does nothing to to expand the Earned Income Tax Credit (EITC), which is arguably the most important provision in the tax code for working families.

The plan says “the committees will work on additional measures to meaningfully reduce the tax burden on the middle-class,” but it is clear from details of this framework, and previous GOP plans, that the main goal is large tax cuts for the wealthy, with low- and middle-income families as just an afterthought.

 

Cassidy-Graham is the Latest Attempt to Take Away Healthcare Coverage from Thousands of West Virginians

The latest attempt to repeal the Affordable Care Act, the Cassidy-Graham bill, would cut West Virginia’s funding for Medicaid by $2.0 billion by 2027. This would undermine health coverage for tens of thousands of West Virginian’s and threaten the state’s historic gains in health coverage stemming from the Affordable Care Act.

The Cassidy-Graham bill cuts health coverage in two main ways.

Block Grants are no replacement for ACA provisions.

The biggest cuts in the Cassidy-Graham bill come from converting the ACA’s Medicaid expansion and marketplace subsidies with smaller, temporary block grants. According to the bill’s sponsors, this block grant would give states “flexibility,” allowing them to maintain the coverage available under the ACA, if they wanted to do so while enabling other states to experiment with alternative approaches. In reality, however, states would not be able to maintain their coverage gains made under the ACA, because the block grant funding would be an insufficient amount to maintain coverage levels equivalent to the ACA. The block grant would provide $239 billion less between 2020 and 2026 than projected federal spending for the Medicaid expansion and marketplace subsidies under current law.

In 2026, this funding would completely go away, leaving states with 100 percent of the cost for the people covered under these programs. This cut would almost certainly leave states no choice but to discontinue these kinds of coverage. The result is that, beginning in 2027, Cassidy-Graham would be virtually identical to a repeal-without-replace bill — except for its additional Medicaid cuts through the per capita cap, described below. The non-partisan Congressional Budget Office (CBO) estimated that the repeal-without-replace approach would ultimately leave 32 million more people uninsured. The Cassidy-Graham bill would presumably result in even deeper coverage losses than that in the second decade.

A permanent and ongoing cut to traditional Medicaid

Like prior House and Senate Republican repeal bills, the Graham-Cassidy bill would radically restructure and cut the rest of Medicaid, outside of the ACA’s Medicaid expansion. It would end the federal-state financial partnership under which the federal government pays a fixed percentage of a state’s Medicaid costs. It would instead impose a per capita cap, under which federal Medicaid funding would be capped at a set amount per beneficiary, irrespective of states’ actual costs, and would grow each year more slowly than the projected growth in state Medicaid costs per beneficiary.

The result would be deep cuts to federal Medicaid spending for seniors, people with disabilities, families with children, and other adults (apart from those affected by the bill’s elimination of the Medicaid expansion). Notably, these per capita cap cuts would come on top of the cuts to Medicaid expansion funding and marketplace subsidies under the block grant discussed above.

Starting in 2025, the annual adjustment of per capita caps is reduced to an even lower level, creating even deeper cuts to Medicaid. In 2027, after the block grants disappear and Medicaid per capita caps are further reduced,  combined would result in a $2.042 billion federal funding cut for West Virginia.

Cassidy-Graham's Large Cuts to Federal Health Care Funding Grow Even Larger Starting in 2027

Disruptions to the individual markets

In addition to hurting healthcare coverage through major Medicaid cuts, Cassidy-Graham would also disrupt the individual market. The Cassidy-Graham bill would immediately eliminate the individual mandate requiring everyone to have some kind insurance coverage or else pay a fine, which the Congressional Budget Office estimated would result in 15 million more uninsured in the following year.

The bill’s elimination of the ACA marketplace subsidies and start of a block grant in 2020 would cause massive additional disruption. States would lack guidance, standards, or administrative infrastructure for creating their own coverage programs, and insurers would have no idea how the individual market would operate, including what their risk pools would look like. Insurers would most almost certainly impose large premium rate increases to account for uncertainty; some would likely exit the market altogether.

Then in 2027, when the block grant disappeared entirely, insurers would face a market without an individual mandate or any funding for subsidies to purchase coverage in the individual market. Yet they would still be subject to the ACA’s prohibition against denying coverage to people with pre-existing conditions or charging people higher premiums based on their health status. Many insurers would likely respond by withdrawing from the market, leaving a large share of the population living in states with no insurers, as CBO has warned about previous repeal-without-replace bills.