How Wy­oming tax­pay­ers dodged a bul­let

If a new cor­po­rate in­come tax had passed, the state would have be­come less com­pet­i­tive

The Washington Times Weekly - - Commentary - By Dan Laursen and Jonathan Wil­liams

For­tu­nately, for the hard­work­ing tax­pay­ers of Wy­oming, leg­is­la­tors did not ap­prove a pro­posed new cor­po­rate in­come tax this ses­sion. If the tax had passed, Wy­oming would have un­doubtably be­come a less com­pet­i­tive state. More­over, Wy­oming would have lost its dis­tinc­tion as be­ing one of only two states with­out a broad-based busi­ness in­come tax. Wy­oming’s cur­rent eco­nomic out­look rank­ing of 8th best in the Rich States, Poor States: ALEC-Laf­fer State Eco­nomic Com­pet­i­tive­ness In­dex would have fallen to at least 15th. That would have been Wy­oming’s first time out­side of the top 10 in the 11-year his­tory of our rank­ings.

Wy­oming law­mak­ers should look for sta­ble rev­enue sources to en­sure core pub­lic ser­vices, such as schools and po­lice of­fi­cers, are prop­erly funded re­gard­less of oil price fluc­tu­a­tions. If rev­enue is needed, Wy­oming should use its re­tail sales tax as op­posed to any form of dis­crim­i­na­tory taxes, such as an in­come tax. Be­fore Wy­oming law­mak­ers do any­thing mov­ing for­ward, they should take a deep breath and look closely at West Vir­ginia.

The Moun­tain State adopted a per­sonal in­come tax in the 1960s and high taxes sub­se­quently took a toll on the state’s eco­nomic com­pet­i­tive­ness. Un­for­tu­nately, West Vir­ginia has the poverty to prove it. Its poverty rate is the fourth high­est na­tion­ally. While re­cent tax cuts and la­bor re­forms such as right-to-work have brought the prom­ise of a brighter eco­nomic fu­ture, West Vir­ginia’s his­tory with the dam­ag­ing ef­fects of an in­come tax proves that a state can­not be taxed into pros­per­ity. Based on the ex­pe­ri­ences of West Vir­gini­ans, Wy­oming should be very care­ful of the un­in­tended con­se­quences from an in­come tax.

Wy­oming is a spe­cial state. Wy­oming at­tracts the rich and fa­mous and has glo­ri­ous des­ti­na­tions such as Jack­son Hole. Jack­son Hole is

Amer­ica’s ver­sion of Monaco, Hong Kong and Switzer­land. While Wy­oming is a lovely state, it’s no love­lier than West Vir­ginia. Yet it is much more pros­per­ous than West Vir­ginia.

West Vir­ginia has a per­sonal in­come tax rate of 6.5 per­cent, a cor­po­rate tax rate of 6.5 per­cent, the 11th most pro­gres­sive per­sonal in­come tax and fifth high­est re­main­ing tax bur­den. Wy­oming has wisely avoided both a per­sonal and cor­po­rate in­come tax. Es­pe­cially in past years, West Vir­ginia had ex­ces­sive tax bur­dens and is poorer be­cause of it. Based on decades of ev­i­dence from the states, it’s safe to say once you start rais­ing tax rates, it is in­cred­i­bly dif­fi­cult to stop.

Much like West Vir­ginia, Wy­oming re­lies heav­ily on coal and other min­ing op­er­a­tions. Wy­oming is sub­ject to mas­sive swings in state out­put and in­come as the prices of oil and coal go from high to low and back again. Un­for­tu­nately for Wy­oming and West Vir­ginia, com­mod­ity prices have swamped eco­nomic poli­cies many times. To state the ob­vi­ous, nei­ther Wy­oming nor West Vir­ginia has much — if any — con­trol over world­wide com­mod­ity mar­kets. Both states are des­tined to live with in­sta­bil­ity be­cause of the nature of oil and coal prices. How­ever, if law­mak­ers lean on an in­come tax to in­crease state tax rev­enue, the rev­enue stream will not be able to es­cape the volatil­ity trap.

A key el­e­ment for mak­ing a good pol­icy de­ci­sion is miss­ing from the re­cent cor­po­rate tax de­bate in the Wy­oming leg­is­la­ture. The miss­ing el­e­ment comes from the spend­ing side of the ledger. In years when tax rev­enues are above av­er­age, Wy­oming should re­strain spend­ing and set aside enough in­come for a sus­tained “rainy day.” Neigh­bor­ing Colorado has em­braced fis­cal re­spon­si­bil­ity with their Tax­pay­ers’ Bill of Rights (TA­BOR), an im­por­tant con­sti­tu­tional mea­sure passed by vot­ers in the 1990s, which keeps gov­ern­ment spend­ing within its means dur­ing the good times. In turn, this tax­payer pro­tec­tion has al­lowed Colorado to cut tax rates and has fu­eled eco­nomic growth in the state.

Out­side of eco­nomic growth and di­ver­si­fi­ca­tion, there’s very lit­tle Wy­oming can do to sta­bi­lize their state’s volatile, min­ing­based econ­omy. But Wy­oming can re­duce the im­pact of rev­enue in­sta­bil­ity with­out rais­ing any new taxes. It won’t be easy, but some smart choices on both the tax and the spend­ing sides of the ledger will be well worth it. It would be eco­nomic mal­prac­tice to add rev­enue volatil­ity to Wy­oming’s fis­cal sys­tem and sub­tract eco­nomic growth from the state with the in­tro­duc­tion of an in­come tax.


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