Monday, February 13, 2017

Tide Is Turning Against Higher Taxes

The conversation about the state budget is slowly changing. Tax hikers, who came in to the session very confident of their ability to inflict higher costs on families and businesses, suddenly find themselves fighting an uphill battle. There is growing interest in real, long-term spending reforms as an alternative to higher taxes.

This is good news; it is beginning to look as though fiscal conservatism and common sense might prevail. The fight is far from over, but there is one very good sign that the air is slowly leaking out of the tax-hikers balloon: they are beginning to sound repetitive and, frankly, stale in their arguments.
As an example, consider this article from the Casper Star Tribune, February 7:

[Many] economists question whether a state like Wyoming will ever be able to re-create tens of thousands of energy-related jobs with small factories and similar businesses. And even if lost energy jobs could be replaced on a large scale, a troubling issue remains: State government currently receives about 70 percent of its revenue from the energy industry, mostly through severance taxes and mineral royalties — fees that are only charged to companies taking natural resources out of the ground. In other words, the state sees a direct tax benefit only from mining companies.

Now… what could possibly be coming out of this story?

“Economic diversification without a change in the tax code isn’t going to work,” Rep. David Miller, R-Riverton, said at a news conference in January. “In fact, it’s a recipe for disaster.” Miller, the Legislature’s House Majority Floor Leader, was highlighting the fact that any move away from extractive industries in Wyoming will mean less money for public services.

There it is; the story is laid out. We are not supposed to diversify the Wyoming economy to create more jobs. We are supposed to do it so we can replace lost tax revenue.

The Tribune has been on a tax-hiking crusade for a while now. They are not alone. Behold the words of Governor Mead as quoted by the Tribune in the February 7 article:

Mead, too, has noted that while companies like Magpul provide local jobs, attracting them through low taxes means less revenue for Wyoming. “If we’re going to bring in new industries to diversify us, whether it’s manufacturing or whatever it may be, we have to make sure there is a tax benefit to that,” Mead said in a fall interview with the Star-Tribune.

This quote puts the entire case for tax hikes on its edge. What is the fundamental priority behind the pursuit of higher taxes?

Let’s say some company wanted to create 3,000 jobs in upstate Wyoming, in counties that have suffered the worst job losses in the past couple of years. For the sake of the argument, suppose they would not pay any noticeable taxes. Let’s also say that another company wanted to create 300 new jobs in the same area, but they would fall within the category of paying severance taxes. Suppose the companies would be using the same piece of land.

Now, imagine that each company would need a permit from the governor to start operations. Which company would he prefer?

In fairness to Governor Mead, compared to the tax hikers in the legislature he often comes across as measured and thoughtful. He has also worked hard to attract new businesses to Wyoming. But that is precisely where the example of these two hypothetical businesses becomes relevant: what is his real purpose for supporting industrial diversification in Wyoming? Would he emphasize private-sector jobs for Wyoming workers – or tax-paid jobs for government employees?

Even if Governor Mead is willing to lean in favor of private-sector regardless of its contributions to tax revenue, he would be under heavy pressure from the legislature to protect our oversized government. Back to the Casper Star Tribune, which joins Senate President Bebout in lamenting the fact that industrial diversification does not automatically bring with it a cornucopia of tax revenue (emphasis added):

That puts the conservative politicians who control the Legislature — the only body that could raise, or change, taxes in Wyoming — in a tricky spot. “I’m not in favor of corporate or personal income tax,” Senate President Eli Bebout, R-Riverton, said. But before he had finished his brief comments at the same news conference where Miller spoke, Bebout said that, actually, the economy needed to diversify, and the tax system needed to change, too. “We need to look at that diversification of the tax base,” Bebout said.

More strongly than Governor Mead, Senate President Bebout puts tax revenue in the front seat when talking about industrial diversification. It is not about new jobs, and certainly not about generating more private-sector economic activity. It is all about broadening, diversifying, reforming the tax base.

As if to drive home this point, the Casper Star Tribune notes the plethora of tax-hiking bills introduced in the House this session – and their inability of compensating the state for lost severance-tax revenue:

There was a bill to eliminate sales tax exemptions, allow cities and counties to raise the lodging tax and one that would have taxed alcohol at a higher rate and sent that money to fund schools. Other bills sought to lower various taxes. But none have proposed any radical alterations to the tax code, and no bills to begin taxing personal incomes or non-energy companies’ profits were brought forward. The closest the Legislature has come to looking at truly new forms of taxation was a Senate bill called “Tax reform 2020,” which would have convened a panel of legislators.

This bill failed in committee, which is yet another sign that when it comes to taxes, sobriety is spreading through the ranks of our legislature. The question is, can those who decide to take a dispassionate look at the detrimental consequences of higher taxes actually convince those who still have a craving for more tax revenue, to get off their addiction to spending other people’s money? The fate of Senate File 131 will be a good indication. Currently in Revenue Committee, SF131 wants to create a select committee to…

conduct a review of projected state revenues and potential modifications of revenue streams and potential additional revenue options.

There is little doubt that the sponsors, Senators Bebout, Rothfuss and von Flatern and Representatives Harshman and Miller, are not going to easily give up their fight for new, bigger and heavier taxes.

In the Casper Star Tribune article from February 7, Senate President Bebout calls for a “medium” between tax increases and spending cuts to eliminate the state’s budget deficit. That is, quite possibly, the last selling point to move the legislature – and the tax-paying public – into the pro-income-tax column. That “medium” would most certainly include a corporate income tax.

It is easy to demonstrate why such a tax would be a bad idea, almost as bad as a personal income tax. So far, such arguments do not seem to work on the most dedicated tax hikers in the legislature, but hopefully they can reach enough common-sense minded members of the House and the Senate to eventually put an end to the pursuits of economically destructive tax hikes.

Again, what is really the purpose with what the legislature is doing? Is it to preserve government and its funding? Or is it to make life as good as ever possible for the people of Wyoming?

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