Ted Boettner, Cathy Kunkel: While WV Cuts Corporate Taxes, Problems and Bills Pile Up

Charleston Gazette -  For the past decade, the West Virginia Legislature embarked on a strategy of cutting its way to growth — cutting corporate taxes by about $220 million a year. And this year the Legislature and governor are poised for more of the same, proposing to phase out $140 million in business property taxes for mostly large out-of-state manufacturing and extraction industries. Story link 

While proponents like the W.Va. Chamber of Commerce and others said our last round of corporate tax cuts would boost jobs and growth, it’s clear that the only thing that happened was large cuts to colleges, schools, and other important public services. We have fewer private sector jobs today, than we did over 10 years ago before cutting corporate taxes. While the tax cuts didn’t have a significant impact on business growth, they have resulted in rising health care expenses for the one in seven West Virginians who depend on the underfunded Public Employee Insurance Agency.

In the last three years, for someone making the average West Virginia teacher salary (about $45,600), annual premiums under PEIA’s family plan have increased $348, the annual deductible has increased by $400 and the out-of-pocket maximum by $2,000. For the average school service personnel salary (about $27,500), annual premiums have increased $336, annual deductible by $400 and out-of-pocket maximum by $2,000.

For the average family of four on PEIA, annual out-of-pocket health care costs (including premiums, deductibles, copays, coinsurance and pharmaceuticals) for a family of four on PEIA have increased by nearly $1,000 in the last three years.

The state also has not given any kind of meaningful pay raise to teachers, school service personnel or most other public employees. According to state Department of Education data, annual teacher salaries (average and starting) and average school service personnel salaries have all gone up by less than $50 over the last three years. Meanwhile, in Kentucky, a state very similar to us, average classroom teacher pay as grown by over $1,800 over this time.

The Legislature simply has not provided the money that PEIA needs to keep pace with rising health care costs. Medical and drug costs have been increasing at 5 to 7 percent per year, which would require additional funding of approximately $50 million every year for PEIA. Instead, over the last several years, the Legislature has made one-time transfers into the fund of $10 million a year or less.

While it’s easy to rail against state Supreme Court justices buying $30,000 couches, it’s hard to figure out how to generate $50 million more each year without raising revenue.

Despite all of the pressure from public employees this year, the state still has not raised revenue for PEIA. The PEIA Board recently voted to “freeze” PEIA (i.e. not to enact the cuts they had planned for the next fiscal year), but the Legislature still has not figured out how to pay for this freeze, other than a possible one-time withdrawal from the state’s Rainy Day Fund. But if PEIA is going to avoid next year’s cuts in perpetuity, not just kick the can for a year, it needs to find that revenue every year, not just once.

If PEIA needs an additional $50 million a year to keep pace with rising health care costs, then in five years it will require $250 million above current revenues. That’s a lot of money, but it’s on par with the $220 million a year the state would have if we’d simply kept the corporate net income tax and business franchise tax rates at their 2006 levels.

Short of reversing the past decade of corporate tax cuts, the proposal to raise the natural gas severance tax from 5 to 7.5 percent would be another way to generate revenue for PEIA. Based on Department of Revenue projections for the current fiscal year, a 2.5 percentage point increase in the natural gas severance tax would generate approximately about $85 million per year. Another avenue would be to raise income taxes on the wealthy who have received almost all of the benefits of economic growth over the last 30 or so years. This could also include reinstating our estate tax that we had on the books from 1904 to 2005.

The problems facing PEIA are tied up in the national health care crisis. A long-term fix for PEIA would require getting health care costs under control, through federal policy and/or through more active state policy to control drug costs. Otherwise, state workers, like everyone else, will continue to see their pay increases eaten up by rising health care costs.

In the meantime, it is time to fully fund PEIA for our public workers across the state and give them a salary that is as good as our children’s future.

Ted Boettner is executive director of the West Virginia Center on Budget and Policy, and Cathy Kunkel is a member of Rise Up WV.


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