In the recent session, the West Virginia legislature was confronted with some very tough choices due to our state’s budgetary problems. One of the duties of the governor is to propose the annual state budget. This year there were some that felt that it contained a last minute numbers surprise; that the governor might have pulled a fast one. Be that as it may, the legislature responded with a balanced budget that did not raise taxes. The governor vetoed it. After some back and forth a “compromise” was reached that included a substantial increase in taxes. Not good.

West Virginia is not alone among states that have budget problems. However, there are some states that have responded differently to them. Take the case of North Carolina. According to the headline of an op-ed piece that appeared in the Charlotte [North Carolina] Observer earlier this year, “Despite GOP tax cuts, North Carolina’s still raking in more tax revenue from individuals”. Citing Bloomberg News, “North Carolina has cut personal income tax rates in recent years, but the state is still collecting more tax revenue from individuals”.

Now, to be sure, the thought of the government “raking in more tax revenue from individuals” doesn’t make me all warm and fuzzy. However, the article makes several points, among them that North Carolina, “should add 90,000 payroll jobs in 2016. Labor force growth for 2015 came in five times stronger than the national rate, and job growth exceeded the national rate as well”. The article continues, “last year we went from predictions of a deficit to that $400 million surplus” adding, “the overall surge in tax receipts certainly shouldn’t go unnoticed, especially since most of the increased collections for the 2016 cycle so far come from higher individual income tax receipts. They’re up $489 million, 10 percent above the same period of the prior year”. All this while cutting taxes.

The idea that cutting taxes spurs economic growth is not a new one. Ironically, in his book, Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and What We Can Do to Fix It, then West Virginia University economics professor Russell Sobel included a brief section entitled, Charleston WV, Versus Charlotte, NC: A Tale of Two Cities. He goes all the way back to 1920, shortly before the reign of the Democrats in West Virginia began.

According to Sobel, “Because of their similar histories, the cities of Charleston, West Virginia and Charlotte, North Carolina are interesting to compare. In 1920 both cities had approximately the same average incomes, educational levels, and populations”. He goes on to say, “Over the subsequent eight decades, however, Charlotte has grown into a crowning jewel of the South, with a population ten times the size of Charleston (53,421 versus 540,828)”. Eight decades - that’s almost how long the Democrats had been in charge of the West Virginia legislature.

Sobel concludes, “What made it possible for Charlotte to sustain a higher rate of growth over such a long period of time? The answer is simply that North Carolina had a set of policies in place that were more conducive to economic growth”. Taxes played a big part.

According to Sobel’s book, taxes cost more than they take in. In Chapter 5, “one dollar of taxes costs the West Virginia economy somewhere between $1.60 and $1.82”. And while making the point that “High tax counties and states tend to grow slower and have less business activity and employment” he also points out that, “Almost every measure of tax burden indicates that West Virginia is at a competitive disadvantage in attracting businesses and households compared to other states”. The book was published almost ten years ago. Had we acted on it’s recommendations then, West Virginia would be a much more prosperous place today.

Last year, in the Fact Checker feature of the Washington Post, there appeared an article headlined, “Rand Paul’s claim that Reagan’s tax cuts produced ‘more revenue’ and ‘tens of millions of jobs’”. Fact Checker has been exposed as being notoriously biased — toward the left. They remind me of the quote most often attributed to Mark Twain - figures don’t lie, but liars figure. But let’s explore their response to Rand Paul’s claim.

At the time, Paul was one of the many Republican candidates for President. Upon hearing Paul’s claim, Fact Checker went right to work in trying to prove him wrong. So much for Fact Checking. Identifying economist Stephen Moore as the source of the claim, they quote him: “…the government’s budget numbers show that tax receipts expanded from $517 billion in 1980 to $909 billion in 1988 — close to a 75 percent change (25 percent after inflation).”  Fact Checker’s begrudging response? “We checked the historical records of the White House budget office, and those numbers are right. But it’s devoid of important context”. I refer you to Mark Twain.

The article then launches into an extended debate with itself as to what exactly that “important context” is. I’ll spare you the convoluted details. Ultimately, Fact Checker concludes that, “We have no opinion on whether the 1981 Reagan tax cut was good or bad for the economy…” Offering this dismissive comment with a figurative shrug, “that’s for economic historians to sort out”.

The truth is that the formula of increasing government spending and raising taxes to pay for it is a vicious cycle that has cost West Virginians dearly over a very long period of time. However, in spite of the preponderance of evidence to the contrary, there are still those that persist in insisting that the state government needs to explore new sources of revenue. Knowing that with each new tax, West Virginians have less to spend in the real economy on things they might need. And each new tax represents a barrier to entry for job creators.

For a little comic relief I saw a post on the Democrats of Jefferson County WV Facebook page. It exclaimed, “The Republican extremists in Charleston are running this state into the ground!” The author of that post has no sense of history or proportion. For two years the Republicans have been in charge of the legislature after 80 years of Democrat control and we still have a Democrat in the governor’s mansion. What if that individual were told that for the first four years of the Reagan tax cuts, tax revenues went down first before turning sharply higher?

That’s the funny part.

The sad part is that the post included a link to an op-ed piece that appeared in the Huntington West Virginia Herald-Dispatch. The heading, “Thumbs down: West Virginia economy ranked last in the nation” refers to a piece recently published by Governing magazine. Adding, “Perhaps the most discouraging aspect of the rankings is that our neighbors in every direction are doing better - often a lot better”. Hence the title of Sobel’s book.

Most people simply do not understand the dire consequences of bad economic decisions on the part of elected (or non-elected) government officials. That is why everyone should read Sobel’s book: Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and What We Can Do to Fix It. Democrats and Republicans alike.