(Continued from Part 6 – published 1/22/2013)
Raising real property taxes or the sales tax aren’t the only ways to offset the losses from eliminating the personal property tax in West Virginia. For example, last year’s H.B. 4473 called for using the proceeds from the proposed future fund to reduce the personal property tax burden on businesses. Advocates for the approach claim that reducing or eliminating the personal property tax would result in rapid job growth. But is there any evidence for that claim?
First, it’s worth noting that, even with the personal property tax, overall, West Virginia has a very low property tax burden. Among the 50 states, West Virginia ranks 42 for property taxes as a percent of personal income, and 44th for property taxes per capita. And of the 13 states that do not tax personal property, only one, Delaware, ranks lower than West Virginia.
Even when considering personal property heavy businesses like manufacturing, West Virginia doesn’t come out that bad. According to a study from the Minnesota Taxpayer’s Association and the Lincoln Institute of Land Policy, for manufacturers located in an urban area with half their property value coming from personal property, West Virginia’s effective property tax rate ranked 18th, behind five states that do not tax personal property. The takeaway here? West Virginia’s extraordinarily low real property tax more than makes up for its personal property tax.
As for the claims about job growth, the evidence just isn’t there. Since the end of the recession, there has been no statistically significant difference between average job growth in the states with taxes on personal property and those without.
| States with PPT | States without PPT | |
| Average Job Growth Since End of Recession | 2.0% | 2.9% |
| Variance | 0.00035 | 0.00147 |
| Hypothesized Difference | 0 | |
| t statistic | 0.74 | |
| alpha level | 0.05 | |
| p value | 0.47 |
The same is true if you focus on manufacturing employment, this time looking at growth during the most recent national expansion in manufacturing employment. Once again, there was not statistically significant difference in job growth between states with taxes on personal property and states without.
| States with PPT | States without PPT | |
| Average Manufacturing Job Growth (1/10 – 3/12) | 3.6% | 3.9% |
| Variance | 0.0013 | 0.0032 |
| Hypothesized Difference | 0 | |
| t statistic | -0.1823 | |
| alpha level | 0.05 | |
| p value | 0.86 |
With that in mind, it is unsurprising that Ohio has not experienced rapid job growth since it began to phase out its personal property tax in 2005. As the chart below shows, job growth remained flat in Ohio once the tax began its phase out, despite job growth growing nationally. And since the end of the recession, Ohio’s job growth has slightly lagged behind the national average. There is almost nothing to suggest that Ohio’s elimination of its personal property tax resulted in increased job growth.
All of this shouldn’t be a surprise for those who value evidence. And the evidence suggests that business taxes don’t have all that much of an effect on state employment and economic growth for a variety of reasons.
