Wednesday, May 3, 2017

The Open Road to an Income Tax

No, this is not a joke. In fact, it is not funny at all. 

During the legislative session there were bills introduced that would lay out a path to a personal, and probably corporate, income tax here in Wyoming. Fortunately, all those bills eventually died.

But just like the Emperor in Star Wars, somehow the idea of a state income tax is able to clone itself back to life again. Short of a major change in in thinking among our legislators, here is how you will get an income tax. And soon, possibly already in 2019, less than two years from now.

It starts with two legislative committee meetings in the next month or so.
The first is next week's Revenue Committee meeting in Saratoga. Starting at 8AM on Thursday the 11th, this meeting is going to discuss local government revenue issues,the Wyoming tax structure and revenue streams, and a gross receipts tax. 

All these three items are of direct importance to your personal finances. The first two - local government revenue and the Wyoming tax structure - are meant to set the stage for the third big item: the gross receipts tax. By first concluding that there is not enough tax revenue flowing into local government coffers, and then agreeing that it is not possible alter the Wyoming tax structure, in other words to introduce an income tax, without a court battle, the committee will turn to the gross receipts tax as a fallback option. 

Think of a gross receipts tax as a VAT light, or a sales tax on everything. Every item - good or service - sold in Wyoming would be burdened by it. If applied strictly like a Value Added Tax, you would see it show up on the price for your haircut; on your plumber's bill when he fixes that water leak; on your accountant's services when he prepares your taxes; on lawyer's services; on the lease you pay for your apartment; and so on. 

Applied this way, a two-percent gross receipts tax would, statically, take a bit over $400 million out of the pockets of Wyoming's families. Add to that a gross receipts tax on items sold between businesses, and the sum total could exceed $600 million. Again, this is a static measure unlikely to hold up over time, but it is the kind of estimate that our legislators will very likely use when they set their tax target.

Again, the exact number depends on how the tax is applied. It also depends on how the economy responds to the tax; keep in mind that a gross receipts tax would not replace the current sales tax, but add to it. That means we could end up with the highest combined sales-and-gross-receipts tax burden in the country.

Once the Revenue Committee has concluded, hands wringing and crocodile tears falling on their cheeks, that we probably, actually, really need a gross receipts tax, the ball is kicked over to the Education Recalibration Committee. Their next meeting is at 8AM, June 12, in Riverton. This will be a joint meeting with the Revenue Committee, which essentially means that the two committees together will repeat the procedure from the Revenue Committee meeting next week: a lot of wrinkled foreheads, murmured laments about how tough this is, and another round of "really don't want to but it's for the kids" arguments - and voila, both committees line up behind a gross receipts tax.

Now, we all know that there is no chance a gross receipts tax will pass in this comprehensive, by-the-book form. The reason is that powerful lobby groups, such as lawyers and the minerals industry, will protest and suggest that they be exempt from the gross receipts tax. Eventually, the tax will be eroded by lobbyists to a point where it no longer can make any meaningful difference in terms of revenue. 

Our clever legislators know this, of course. As soon as the two committees walk out of that meeting in June, lobbyists will start calling. Our elected officials will feel the pressure, exhibit well prepared signs of legislative panic - and realize that they have no other choice than to call a special legislative session.

During that session an invisible hand will place a proposal for an income tax in the hands of every one of our state lawmakers. Given their extraordinary efforts to introduce a gross receipts tax, our lawmakers will now let us know that they have no choice. The special session will take appropriate measures toward necessary changes to the state constitution, and the roll out the actual tax proposal. 

Expect an alarming revenue report from the Consensus Revenue Estimating Group between now and October - the exact opposite of what their reports have been like thus far. Just in case the legislature cannot stir up enough "for the children" panic on their own...

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