Of late, there has been a great deal of bold talk among politicians about reforming tax codes. In Washington, Congress is talking about ending its long love affair with the Alternative Minimum Tax. Imagine that-populists debating the death of a punitive income tax on the rich and the upper middle class.
So as not to be left behind in the tax debate, our state leaders are talking about tax reform with all of the gusto of astronauts readying for the first mission to Mars. I use the comparison of going to Mars because changing West Virginia’s tax policies will be a long-term venture with peril at every step.
Politicians always fail when enacting taxes because they cannot help but authorize more spending than the taxes collect. This is true of both Democrats and Republicans.
There is a philosophical hurdle at work when it comes to collecting taxes and balancing the books. I call it the Government Dependency Ratio. In West Virginia, we are trending toward an unsustainable GDR of 1:1 payees/payors.
Former Secretary of Agriculture Earl Butz (under Presidents Nixon and Ford) once addressed the GDR this way. In the early 1970’s, it had become apparent that Social Security recipients would eclipse the number of workers paying into the system.
Mr. Butz compared the situation to his days growing up on an Indiana farm. He said he overslept one frigid morning and was late in going to the barnyard to feed the cows. When he got there, two heifers were suckling each other’s udder to stave off hunger. Then he added to his anecdote that, in such situations, some milk always ends up on the ground.
Mr. Butz, of course, was making a joke. Cows, unlike humans, are weaned from the teat. But the barnyard example nevertheless holds true for people who have become dependent on the government. Should milk spill on the ground, the government simply borrows milk from other farms with the promise that future government cows will pay back the shortfall.
Government is the biggest employer in West Virginia. For starters, one out of six West Virginians is covered by Public Employees Insurance Agency health insurance. Add to that the federal employees. In Harrison County alone, we have a large postal distribution facility, a veteran’s hospital, a federal courthouse and the FBI Center with its growing biometrics offshoot. There are a lot more federal employees in our state that you might first imagine.
The health care industry receives a major portion of its revenue from Medicaid, Medicare and worker’s comp. Were it not for these reimbursements, a great number of hospital and health care workers would be out of work. To calculate the GDR, we have to include that percentage of full-time equivalent positions that are paid, albeit indirectly, by government programs.
When it comes to construction, government builds the big ticket projects such as highways, airports and dams. Next down on the list are water and sewage systems. While construction workers are paid by the private sector, most construction jobs exist only because the government is paying for them. Even in the housing sector, most new homes would never get built without the homeowner’s deduction for mortgage interest.
How many grocery workers would lose their jobs if food stamps and free school meals disappeared tomorrow?
In short, a whole lot of West Virginia workers depend on government for a paycheck. And neither federal nor state tax collectors are the least bit shy when it comes to asking for a goodly portion of those paychecks in return for those jobs.
To complete the calculation of the state’s GDR, just add in everyone who gets a transfer payment. Whether that payment is social security, government-paid disability, military retirement, earned income credit or one of the myriad welfare benefits that is out there doesn’t matter. Just start adding.
"Getting a check" is a big deal in West Virginia. Changing that attitude will take a radical departure from current policy.
Taxes and tax rates aren’t the problem. Government spending, including a mountain of deficit borrowing and unfunded liabilities, is the issue. Reduce the Government Dependency Ratio, and the tax code will take care of itself.