The Wall Street Journal joined the fray yesterday in making the time honored claim that West Virginia under performs neighboring states because of its tax laws (not to mentioning bashing our late Senator Byrd). It’s important to note that no one, I mean no one, has ever proved this, people just say it all the time.
While taxes can affect behavior, tax payments are just too small of a cost to make a real difference in business location decisions. Taxes pale in comparison to the cost of energy, labor, and occupancy. To put this in perspective, the average annual wage for manufacturing workers in 2009 in West Virginia was $42,806. For Kentucky it was $44,761, for a difference of $1,955. This means a typical manufacturing firm in West Virginia employing 150 people pays almost $300,000 less per year in wages than one in Kentucky. This difference is easily wider than the “possibly” higher marginal tax rate in West Virginia (No, this doesn’t mean I’m advocating for low-wages).
The most important thing to keep in mind when pundits and politicians say West Virginia’s “tax burden” hurts our state’s business climate, is that businesses look at the overall cost of doing business – not just taxes. According the conservative Milken Institute, West Virginia ranks 37th lowest (two spots better than Kentucky) in their 2007 Cost-of-Doing-Business Index.
Business also considers strong public structures. Gary Walton, Director of the Putnam County Development Authority, noted in the Sunday Gazette that one of the key selling points of locating in Putnam County was that it is “close enough to West Virginia’s largest cities,Charleston and Huntington, to pull from a labor force of more than100,000 people” and that “the county [was} surrounded by many of the state’s colleges –Marshall University, the University of Charleston, West Virginia State University, etc.” And that this was ” a big selling point for the companies interested in filling jobs that require degrees.”
As conservative Bruce Bartlett pointed last week in the Fiscal Times , “If low taxes were the primary key to growth then Africa would be
far richer than it is.”