In confusion there is profit

In the movie Operation Petticoat there is a great line that holds true in today’s troubled economy. When Lt. Com. Sherman (played by Cary Grant) asks where his supply officer, Lt. JG Holden (played by Tony Curtis), is during an air raid the commander is told, “When the air raid started they took off. All he said was, ‘in confusion there is profit.’” It is play on Rudyard Kipling who once reasoned that it was a good thing to keep one's head while all around were losing theirs. Right now across the country the Federal Government and State Governments are loosing their heads over the economy but if West Virginia’s government keeps its head, then we as a state can profit from it.

The way for West Virginia to take initiative is simple. The same bad economic policies out of Charleston that hurt us in good times hurt us in bad times as well and we must change those.

Two periods of strong economic growth stand out in recent American history the one started by John F. Kennedy in the 1960’s and the one started by Ronald Reagan in the 1980’s. Both have a common thread, both Presidents cut the tax rates which put more money in the hands of the people and businesses. This allowed people to spend more money on good and services spurring economic growth and the businesses used the additional money to expand operations providing those goods and services. In other words growth breeds additional growth.

The additional growth comes because people naturally want to be rewarded for their work and when they work harder they receive additional reward. It is the American Way, it is Capitalism. The problem in West Virginia is when compared to other states our businesses and people receive less of a reward for their hard work because of our tax rates and structure. When the state takes a bigger chunk than other states it simply reduces the incentive to work hard in West Virginia or encourages people to move to another state. The state has created a ‘tax wedge’ against prosperity. The removal of this wedge will lead to people willing to take the risk of starting a business and creating new jobs in the state and in bad economy that is more important than in times of prosperity.

Besides the high income tax rates there are two other primary ‘tax wedges’ hurting West Virginia businesses, the Business Franchise tax and the Inventory tax. The Business Franchise tax is based on companies net worth, it’s not a tax on Franchises as many believe and is paid by all businesses in the state. The tax remains whether or not the company is making a profit. This is a tax that companies in most other states do not have to deal with. So in bad economic times this tax has a greater impact on with West Virginia companies that are struggling to make a profit. If a corporation is looking at closing one of two plants, then it will make more economic sense for them to close the West Virginia plant because of the Business Franchise tax.

The same holds true for the inventory tax. Sales drop as the economy slides downward, inventories of unsold goods naturally raise. In West Virginia our inventory tax punishes companies more and more as their sales slide downward. In many cases, especially with small businesses, this can be the straw the breaks the camels back. In order to pay the additional taxes imposed by the state with falling revenues these companies must find the funding. For most this will result in employee layoffs and some bankruptcy.

West Virginia must now make the hard choices to profit in this confused economy. The worse the economy gets the more our business are punished by the state tax structure. The opposite of the way it should be. Consider that eliminating the Business Franchise and Inventory taxes will reduce revenue to the states tax coffers in the short term, but if we don’t eliminate them and those businesses leave or declare bankruptcy they will pay no taxes at all in West Virginia. The cutting of the tax rates will put more money in the pockets of West Virginians and West Virginia businesses rewarding them for their hard work by making it easier for them to weather the economic storm. Making these changes will allow more West Virginia companies to survive and attract those that want to expand with an atmosphere that rewards hard work.

Removing the tax wedges put in place by bad Charleston policies will allow West Virginia to keep its head while other states loose theirs.