Both former Gov. Jim Justice, who is now in the U.S. Senate, and current Gov. Patrick Morissey have touted cuts in to West Virginia's income tax as a mechanism to pour more money into the overall West Virginia economy and to spur it to become more economically active. They argued if people spent their extra income from less taxes, the money would flow through the economy, generating more economic growth.
Since the inception of these income tax cuts, approximately $800 million annually in West Virginia government revenue has been lost. But there has not been a resurgence in economic well being in West Virginia. Let's follow the money.
The West Virginia Center on Budget and Policy reports that of the cumulative income tax cut amounts, 65% went to those people earning in the top 20% income tax groups. People in these brackets generally are earning sufficient amounts to take care of their daily as well as their annual expenditures for basic necessities of food, shelter and living expenses. In fact, most of them have the ability to save by placing some of their earnings into IRA, 401(k), or other investment plans.
So, once these higher-earning people have more disposable income from the tax cuts and have no pressing need to spend it, what did they do? They put it into their investment accounts.
Once the money is in investment accounts, the investment managers buy stocks and bonds on the national or global market to put in the portfolios of their clients. The extra cash from the tax cuts leaves West Virginia and goes to corporations based far away. And then there is much less to circulate within the West Virginia economy.
Now, of course, there are examples that do not follow this scenario. One could spend this extra income on a vacation. But given individual amounts of disposable cash being in the thousands of dollars, it most likely would be vacations outside the state. The money still leaves West Virginia.
Or this money could be spent to support a child in college. If the child goes to a university within West Virginia, then of course the money circulates within the state. But if the child gets their college education at an institution outside West Virginia, then again, the money leaves the state.
As individuals, their total wealth, including their financial investments, increases but it is isolated from affecting the West Virginia economy.
In effect, within the economic setting of West Virginia, the greatest portion of money from income tax cuts leaves the state’s economy. Rather than a stimulus to economic growth, such extra individual monetary savings — primarily for the top 20% income earners — these cuts actually harm West Virginia's economy and are simply a bonanza for the wealthy.
John David is a Gazette-Mail contributing columnist.Â
