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Tuesday, February 28, 2017

HB236: The Tax Hiker's Last Stand

Update 2: HB236 passed third reading in the Senate, 25-5. An amendment proposing a one-percent sales-tax increase failed on third reading. It now remains to be seen how the Senate will negotiate its differences on this bill vs. the House version, especially on the sales-tax increases that are still in the Substitute House version.


Update: There is a statement circulating that the Senate has removed all tax increases from HB236. However, the engrossed version still suggests a 0.5 percent sales-tax increase (page 17, line 12). If this survives third reading, and the Senate and the House have to compromise on the final version, logic dictates that the compromise will include a tax increase of some kind, probably somewhere between 0.5 and 2.5 percent. With this in mind, all that is said below about HB236 and the consequences of sales-tax increases, is still valid.
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One after the other, the big tax-hike bills have died: the bills to raise tobacco taxes and alcohol taxes; SF131 the Highway to an Income Tax bill; and yesterday, thankfully, SF165 and its proposed food tax and destructive tax on services.

But our legislators have not given up.
They still have one bill that will give them the chance to slam a big, new weight of taxes on the Wyoming economy. Behold HB236 in substituted form, which is due for the third - and final - reading in the Senate (emphasis added):

An act relating to school finance; an omnibus bill addressing education funding; revising the existing education funding formula; providing additional revenue for education through a sales and use tax increase and by transferring existing revenues; providing additional revenue for education through a contingent sales and use tax increase; providing for moratoria on new alternative schools and purchases and leases of school buses and other restrictions on education expenditures; specifying various dates for determination of funds to be distributed and for other implementation purposes; establishing a joint select committee on education funding; requiring reports; providing appropriations; modifying previous appropriations; providing sunset dates; and providing for effective dates. 

Please note the emphasized passage. Members of the Senate allege that they have removed tax increases from the bill (though see p.17, line 12 of the engrossed version), but in order to make HB236 the law of the state as they want it, they will have to reconcile it with the House. Until we know what that compromise is going to look like, the threat of a 2.5-percent increase in the sales tax is real.

We find more about these tax increases on page 16...

Effective on the date specified in this subsection, in addition to the sales tax under subsections (a), (b) and (k) of this section, if applicable, there is imposed an additional sales tax of one-half of one percent (0.5%) which, except as otherwise provided in this subsection, shall be administered in the same manner as the sales tax under subsection (a) of this section.

...and on page 18:
In addition to the sales tax under subsections (a), (b) and (h) of this section there is imposed an additional sales tax of two percent (2%) which shall be administered in the same manner as the sales tax under subsection (a) of this section. The revenue from the tax imposed by this subsection shall be distributed as provided in W.S. 39-15-111(p). This subsection is repealed on June 30, 2020.
If the legislators get what they want, the total 2.5-percent sales-tax increase would grab $375 million from Wyoming taxpayers. Of this money, probably about $250 million would directly hit families and non-minerals businesses around the state, while the last third would end up on the shoulders of coal, oil and other minerals businesses.

In the end, all taxes are paid by us individuals, either through higher cost of living or in the form of lower disposable income. But for the sake of argument, let us disregard the part that will be carried by the minerals industry; a $250-million tax increase comes out to approximately $428 per resident. A family of four, then, will face a cost-of-living increase of just over $1,700 per year.

This is an average number, but consider it for a moment. What can your family scale back on to come up with another $1,700 for your current, regular cost of living?

If HB236 becomes the law of the land, Wyoming will end up with the highest combined state and local sales tax in the region; every neighbor state will have a lower rate. Montana, for one, has no sales tax at all, opening interesting cross-border spending opportunities. Residents of Sheridan, Big Horn and Park counties can travel north across the state line and save $1,600 on a $20,000 car; they can cut the cost of putting new appliances in their home by hundreds of dollars.

For Laramie County residents who work in Colorado, it does not take much to tip the scale in favor of our southern neighbor. In other calculations, I have shown that if our state lawmakers would go for an income tax, for many families it would only take a three-percent rate to neutralize the cost advantages of living in Cheyenne. The tax hikes proposed in HB236, which raise the cost of living by $1,700 per year for a family, has the same effect on a $57,000 annual income as a three-percent income tax. 

Even if there will not be a big outbound migration as a result of HB236, the bill will most certainly have a negative effect on inbound migration.

And the willingness of new businesses to invest in Wyoming.

Dear Members of the Wyoming State Senate - before HB236 comes up for its third reading, will you please say after me:

Wyoming Cannot Afford Higher Taxes

Wyoming Cannot Afford Higher Taxes

Wyoming Cannot Afford Higher Taxes

Thank you. Now, please vote intelligently.

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