West Virginia’s Economic Outlook Improves, Still Behind Most States

In the 10th edition of Rich States, Poor States, West Virginia’s economic outlook improved from 37th to 31st out of the 50 states. This improvement is largely thanks to the legislature’s decisive passage of right-to-work, making it 26th in the nation to boost economic growth potential through expanded worker freedom. However, the remaining 14 predictive indicators in Rich States, Poor States are a mixed bag for the Mountain State.

There are countless factors that contribute to state competitiveness such as energy resources, commodity prices, access to world markets, housing prices and many others. Several important factors are within the power of state lawmakers to influence through policy choices on tax structure, spending priorities and regulation, lawmakers exercise control over the business climate of their state. It is clear which policies produce better outcomes for hardworking taxpayers.

The sales tax burden on West Virginia residents is 15th lowest in the nation, declining last year by 31 cents to $18.84 per $1000 of personal income. Debt service comes in 4th lowest at 4.56 percent of total tax revenue. The average workers’ compensation costs and the number of public employees per capita have also decreased. Improvement in these indicators brightened economic outlook in the state by allowing more taxpayer created wealth to fuel the private sector growth engine.

Despite an improved outlook ranking over the past decade, West Virginia remains in the bottom half of the states. For example, the state ranks 40th in personal income tax progressivity—a factor that discourages work, savings and investment and exacerbates revenue volatility. The state is 47th in remaining tax burden—the average tax burden of all taxes excluding personal income, corporate income, sales, severance and property taxes; and 50th in tort liability system. High tax burdens, a tort system biased in favor of trial lawyers and a high state minimum wage restrain growth potential by creating a hostile business climate.

Overall economic conditions remain a challenge despite crucial legislative victories like right-to-work; additional positive changes must be made. Census Bureau data confirm that time and time again that people vote with their feet. In West Virginia, this voting is evidenced by net domestic outmigration of nearly 6,000 residents in 2015. Lawmakers can use Rich States, Poor States to find solutions that will improve economic growth and thereby improve the attractiveness of their state.

West Virginia has a pivotal opportunity to build on its expansion of worker freedom by reforming its taxation and spending. If state policymakers embrace pro-growth fiscal reforms like those outlined in the ALEC State Budget Reform Toolkit, West Virginia’s economic outlook will further improve as opportunities multiply.