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Monday, April 3, 2017

The Tax Well Is Drying Up

Today, the School Funding Recalibration committee meets in Casper to discuss the funding of our K-12 schools. Since the committee is called "funding recalibration", we probably should not expect them to come up with constructive ideas for school choice reform. 

A much safer bet is that they will present a list of tax increases, possibly also new taxes. 

Last week the Bureau of Economic Analysis (BEA) released another set of macroeconomic data that shows why Wyoming cannot afford higher taxes.
Their personal-income data for the fourth quarter of 2016 is another package of evidence exposing the structural weakness of the Wyoming economy. 

And, again, we rank dead last, dead worst, and dead weakest. I sincerely wish there would be an end to this bad news, but I will continue to report on, and analyze, our macroeconomic crisis, as it is, until our legislators decide that it is time to get serious about putting our state back on a path to prosperity.

There are three items to report on, out of the BEA's latest data. First, personal income itself. In 2015, we Wyomingites earned $32,869,550,000 in personal income; in 2016 that amount had declined by just over $543 million to $32,326,415,000. This is a 1.7-percent decline - the largest decline in the country:

Table 1
Personal income growth, 2015 to 2016
Nevada 5.9% Mississippi 3.2%
Utah 5.6% New Jersey 3.2%
Florida 4.9% Arkansas 3.2%
Washington 4.8% Rhode Island 3.1%
Georgia 4.8% Illinois 3.1%
New Hampshire 4.7% Wisconsin 3.1%
Oregon 4.5% Ohio 3.0%
District of Columbia 4.5% Minnesota 3.0%
Hawaii 4.5% Connecticut 3.0%
California 4.5% Pennsylvania 2.9%
South Carolina 4.4% Texas 2.9%
Arizona 4.3% New York 2.9%
Massachusetts 4.3% Delaware 2.9%
North Carolina 4.1% Nebraska 2.8%
Indiana 3.9% Kansas 2.8%
Colorado 3.9% Kentucky 2.6%
Tennessee 3.9% Montana 2.3%
Maine 3.7% Iowa 2.3%
Maryland 3.7% New Mexico 2.1%
Michigan 3.6% Louisiana 1.5%
Idaho 3.6% South Dakota 1.2%
United States 3.6% West Virginia 1.0%
Virginia 3.6% Oklahoma 0.6%
Missouri 3.5% Alaska -1.0%
Vermont 3.3% North Dakota -1.5%
Alabama 3.3% Wyoming -1.7%

The blunt message for our state legislators in these numbers is that the well, from which they expect to squeeze more tax revenue, is slowly drying up. It does not matter if they consider raising property taxes, or sales and excise taxes, or if they propose an income tax; the money paying for those taxes comes from the same source.

Personal income.

Secondly, the BEA reports on the entitlement share of personal income. Technically defined as personal current transfers, Wyomingites received a total of $4.3 billion as personal entitlements in 2016. Part of that money is, of course, Social Security, but the number also contains welfare and other, similar transfers. The problem with a state that has a high rate of transfers (entitlements) in its personal income is that the money to pay for those transfers has to come out of taxpayers' pockets.

In terms of the personal transfer share itself, Wyoming is doing relatively well: in 2016, only 13.3 percent of total personal income in our state came from transfers, compared to 17.3 percent nationwide. However, our transfer share of personal income is increasing faster than in any other state:
  • In 2015 Wyomingites got $12.60 in transfers for every $100 of personal income; 
  • In 2016 Wyomingites got $13.30 in transfers for every $100 of personal income.
 This is an increase of 5.9 percent, larger than in any other state. This tells us that the first number reported here - the decline in personal income - is having direct consequences in the form of increased dependency on entitlements.

We are getting poorer and more dependent on government. 

The third and last item has to do with the other end of the income spectrum, namely earnings from wealth. Dividends, interest and rent contributed $9.7 billion to Wyoming personal income in 2016, up from $9.6 billion in 2015. In other words, in 2016, Wyoming residents got on average 30.1 percent of their personal income from capital, the highest share in the country. 

This would contradict the conclusion from the previous item, which suggested that we are getting poorer. However, if we compare welfare-based income to wealth-based income in Wyoming, we are on a clearly visible downslope:
  • In 2015, for every $100 of welfare in personal income in Wyoming, wealth produced $232.86 in personal income;
  • In 2016, for every $100 of welfare in personal income in Wyoming, wealth produced $225.52 in personal income.
This wealth-to-welfare ratio in personal income, while the highest in the country, is also declining more than in most states. 

But even worse is the fact that our state had the slowest growth in wealth-based income of all 50 states: in fact, we are the only state with less than one percent growth in wealth-based income from 2015 to 2016. 

All in all, bad news for anyone who wants to raise taxes on the Wyoming economy. To sum up:

1. We are one of only three states that saw a decline in personal income from 2015 to 2016, and we had the largest decline;
2. We had the fastest growth in personal-transfer dependency of all 50 states and the District of Columbia; while not all of this is welfare, coupled with the largest decline in personal income in the country, it is safe to say that this increase is mostly driven by welfare increases;
3. Wyoming saw the weakest growth in wealth-based income in the country. 

Again, the policy implications of these numbers are crisp clear: the tax well is drying up. Our legislators should not even think about increasing the tax burden on our struggling state.

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