Friday, January 13, 2017

Can You Afford $4K in Tax Hikes?

1. He thinks his budget is "bare bones";
2. He maintains that the budget deficit is really only an education-funding crisis; and
3. He wants a "broader, more comprehensive tax structure".

In addition to my analysis of his speech from yesterday, there is another angle to the "broader, more comprehensive tax structure" that deserves attention. But first, let me make one more point about the "bare bones" statement. With all due respect for the governor, whom I like and I think overall is doing a fine job leading our state: the idea that our government is bare-bones is almost an insult to the rest of the country. 

The actual message in Governor Mead's "bare bones" statement is that our state and our local governments, which get a substantial check from the state to run their programs, are operating at an absolute minimum of resources. They are apparently scraping by on the verge of - what? Organizational collapse? Fiscal meltdown? What exactly is the governor saying will happen if we cut another dollar from our tax-paid sector?

We have the highest government employment ratio in the country: it currently stands at 300 state and local government employees per 1,000 private-sector employees. Since the national average is 167, Governor Mead is implying that his 49 colleagues from around the country, and the county commissioners, mayors and school-district executives in those other states, provide their citizens with unbearably deplorable education systems, well below bare bones. What does that mean? Do Ohioans drive around on two-lane gravel roads infested with pot holes that they have to fill themselves? Are children starving in the streets because the welfare programs in Vermont are far below "bare bones"?

What exactly is it that is so "bare bones" about our government here in Wyoming??

Instead of opening a candid conversation about the future role of government in our state, Governor Mead has locked himself onto a single track: higher taxes.

There are a lot of analytical reasons why higher taxes are thoroughly bad for our state. I have presented those analytical reasons in numerous articles on this blog. Therefore, let me offer another approach to the same problem.

The deficit in our state budget is forecasted to grow to $350 million by the end of 2018, and could reach $700 million by 2020. Another prediction - not mine - puts the deficit at $1.8 billion for the 2021-2022 biennium, equal to $900 million per year.  I am not particularly amused by that last number - my prediction remains at $700 million by 2020, given that our legislators do nothing to change the current deficit trajectory.

That forecast, however, is probably a tad conservative. According to our legislative leadership there will be a $400-million annual deficit already in 2018. That puts us on an even steeper trajectory than my forecast, pointing past $700 million per year by 2020. But let's stop right here and put these deficit forecasts in the perspective of Governor Mead's apparent commitment to higher taxes. 

Say the deficit is $550 million by 2019, not an unreasonable assumption given current outlooks. If we cannot cut anything more from government appropriations, and if we are going to rule out any dynamic measures to bring about more growth, our only recourse is higher taxes.

There are just over 550,000 residents in Wyoming. A tax-hike strategy to close the deficit therefore means a tax hike of $1,000 for every man, woman and child in this state. A family of two working adults making, say, a total of $60,000 per year, and two kids, would directly or indirectly face a tax increase of $4,000 per year. 

This higher tax burden is, of course, not going to hit everyone of us in such a blunt form. Some of it will come as higher sales and property taxes; some of it will creep in as taxes on businesses. The problem is that any tax increase on employers will inevitably be passed on to their employees and their customers. We have to pay higher business taxes either in the form of lower wages - or lost jobs - or in the form of higher prices on whatever we buy from those businesses. 

This pass-on effect would be particularly visible if our state legislature decided to create a corporate income tax. I have not heard anyone in the legislature suggest, endorse or otherwise comment positively on such a tax. The governor has not made any such direct comments either, but his State of the State speech contained a few smoke-screened hints of such a tax.

Corporate income tax or not, the $1,000 per-capita tax hike will eventually add up to exactly that: a grand of higher cost of living in Wyoming. For an average family of four, that means many small portions of increased expenses adding up to $4,000 per year. 

Let us contrast this highly realistic scenario against the governor's bare-bones comment about our government. If our elected officials really do go ahead with a plan to raise taxes - and not cut spending - to close the deficit, they must believe that every man, woman and child of this state can afford a grand of higher living expenses. They must be convinced that the average family of four is living with such luxurious surpluses that they can easily dole out another four grand to government.

Or, put differently: if our elected officials choose to go ahead with the tax-hike strategy, they imply that the costs to us, the taxpayers, from any more cuts in government would be so disastrous that it is better for us to cut our expenses by... (Please fill in the blank what you and your family can do without in order to protect our government from more cuts.)

I welcome the governor's call for a candid conversation about the fiscal future of our state's education system. I just wish he would open that conversation to the rest of the budget, and to other solutions than tax increases. Because those solutions exist, in abundance

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