Today, the West Virginia Center on Budget and Policy posted a story comparing the relationship between higher education tuition and business tax incentives. They basically show and argue that state’s tax incentives used to attract business to West Virginia is rapidly increasing higher education tuition.
I agree that state’s across the country are doing a disservice by cutting funding for higher education, specifically in the case of West Virginia which has a large population of low income students. Wealthy businesses shouldn’t benefit off of these students and their families. Furthermore, if you consider this more broadly, by cutting business taxes and raising tuition, states are forcing students to take out loans which helps large financial firms at the expense of students and their families. This has created an explosion in students loans which many consider a significant threat to U.S. financial markets.
However, I think there are other issues at play here that need to be considered. First of all, the state of WV has done a terrible job at diversifying the state’s economy. Politicians remain beholden to the coal industry even as it employees fewer workers every year. Due to this lack of diversity, it seems wise to create incentives to attract new businesses, such as the Pietro Fiorentini Group of Vicenza, Italy which announced yesterday that it is going to build a new plant in Weirton. This creates jobs for those educated in WV which is crucial as many educated West Virginians leave the state due to a lack of jobs.
Thus, there is a negative and positive to tax incentives. What should probably be considered is a short-term tax that lasts for five-to-ten years, after which this tax expires. This would allow business the opportunity to invest in West Virginia and get their business off the ground. When this “grace period” ends, these businesses will have to pay the regular rate of taxation. Moreover, once this tax expires, business should want to support higher education as they will need an educated work force to operate their businesses.