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Stephen Smith’s New Deal For West Virginia

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Stephen Smith is, apparently, running for Governor of West Virginia. No doubt the Guardian will be providing the other runners in that race with equal space to outline their own platforms. Hmm? Smith is the progressive candidate? Ah, OK, so the others won’t get a look in then, will they?

Having never heard of Smith – and only vaguely aware of the existence of West Virginia despite having once cut down a Christmas tree there – tt behoves to have a little look at where Smith is coming from. After all, it’s not entirely true that all progressives are nutters nor that all progressive policies are nuts. Not all.

There’s a slate of more than 90 candidates running for office in West Virginia in 2020 trying to do just that. We call ourselves West Virginia Can’t Wait. We don’t take money from the big pharma executives driving up prices during the crisis, or the big energy executives that are refusing to protect miners and gas workers. We have pledged never to cross a picket line and never to hide from a debate.

We’re running on a New Deal for West Virginia, written and ratified by voters at 197 town halls and countless strategy sessions. We wrote this New Deal before the pandemic, but the ideas remain the same: a Homestead Act and Robin Hood tax plan that shift land and wealth from out-of-state corporations to small businesses and working families. A state bank to finance a WPA-style jobs program, rebuilding our roads, schools, broadband and waterways. An anti-corruption unit in our state police to end election-buying and catch corporate criminals.

Oooooh, cool! So let us take a little look at the details here:

Fund the jobs program by keeping our wealth here, and investing our communities, so we can make sure West Virginians benefit from our resources:
Raise natural gas and oil severance tax to 10%.
Raise the natural gas liquids tax to 15%.
Put protections in place to ensure that out-of-state corporations getting rich from our state’s wealth are paying the severance taxes, and not off-loading them onto WV mineral rights owners by deducting them as post-production expenses.

Severance tax here means royalty. And you don’t get to do that. Sure, you can try doing that but you don’t get to succeed at doing that. The reason is Ricardo. We can use either Ricardo on rents or Ricardo on the iron law of prices but the result is the same. It’s those resource royalties that will carry the burden of any new tax upon those resources.

Oil and gas are sold on, respectively, global and regional markets. The price they’re sold at thus depends upon the global and regional – respectively again – balance of supply and demand. Those who own the resource, collect the royalty payments (for Brits and some other Europeans, those resources are privately owned in the US. Someone finds oil on your land they pay you for it – they’re not nationalised resources as oil, gas, coal and gold are in the UK, and that polyhalite under the Yorkshire Moors isn’t) are price takers. They have no influence, individually, on the price they receive.

So, we add a tax. The market price doesn’t change. Nor does the cost of transport. What is the one price in this chain that can change? Correct, the royalty paid to the resource owners. Just as a specific US tax on Saudi oil would reduce the amount that the Saudis would gain for selling oil in the US, not change the price of gasoline at the pump.

So, Stephen Smith for Governor, the New Deal for West Virginia. The usual mixture of economic ignorance and nutterness which is, presumably, why he’s got a column in The Guardian.

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