Governor Jim Justice called a special session for the Legislature to consider the West Virginia Industrial Advancement Act which provides tax incentives for industrial facilities to locate in the state. The Act overwhelmingly passed both the House and the Senate with bipartisan support. I voted against passage and write to explain my vote.
Targeted incentives or corporate subsidies are intended to entice businesses to build projects or hire people. These incentives almost always include some cost savings to the subsidized businesses. Those cost savings come at the expense of the state, either through direct payments or through forgone tax revenues. In either case, it isn’t the government that pays those costs. It is the citizens. Governments generally don’t ‘earn’ revenue. They tax it away from citizens. Every dollar paid – or tax dollar waived – to a subsidized business is a dollar paid by the rest of the state’s citizens. I generally don’t believe it is proper to tax the whole of the citizenry in order to provide targeted economic benefits to one or more specific businesses.
Nor do I believe corporate subsidies are an effective way to stimulate the economy or create jobs. As Garrett Ballengee, executive director of the Cardinal Institute for West Virginia Policy stated, “economic incentives…are a bad idea 99% of the time. They’re bad theoretically and empirically – the research is quite clear on this.” The proper approach is to “lower taxes, create predictable/fair regulatory and legal frameworks, and ensure a level playing field for job creators.”
Further, such subsidies seem even more inappropriate when government’s outstanding legitimate obligations are not being fully met. If roads are not well maintained or there are significant needs going unfulfilled in government services, the costs associated with such business subsidy plans are even more acutely felt by the citizens.
Finally, while it’s tempting and easy to trumpet any jobs that immediately result from such subsidies, the opportunity costs of what might have otherwise been accomplished with the funds is often ignored or forgotten. As Ballangee wrote, “if West Virginia’s surpluses are going to be used for economic development strategy, it would be more prudent for the surplus to be used to ‘pay down’ the income tax. Targeted industrial policy has an abysmal track record and is anathema to free markets.”
In short, I believe government should limit itself to its proper functions, tax its citizens as little as possible to accomplish its legitimate objectives, and leave business development and job creation to free markets which are sure to thrive when government provides a fair and level playing field and otherwise stays out of the way of its free citizens voluntarily exchanging value for value under the rule of law.
(Editor’s note: Delegate Laura Kimble, R-Harrison was one of just two delegates who voted against the bill, which multiple media outlets reported was meant to entice Nucor Steel to locate in Mason County. Delegate Chris Pritt, R- Kanawha, also voted against it. All other Harrison County representatives voted for the bill.)