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 it’s 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 it’s 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% 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.