How Wyoming taxpayers dodged a bullet
If a new corporate income tax had passed, the state would have become less competitive
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.