Saturday, July 29, 2017

An Open Letter to the Revenue Committee

Chairman Peterson; Chairman Madden; Members of the Joint Revenue Committee of the Wyoming Legislature,

Your agenda for the meeting in Thermopolis on August 2-3 is full of proposals to raise taxes and fees on the Wyoming economy. While I don't think anyone expects them all to pass even through your committee, the rich roster of ideas is in itself a source of great concern. 

I have previously testified before your committee on the serious macroeconomic problems that any new taxes would inflict on our state. My assessment of our state's economy has not changed: while we have emerged from a serious downturn, this only means that we are now stabilizing at a lower level of macroeconomic activity. It does NOT mean that we are going to see a rebound.

The best thing you and the legislature can do now is refrain from increases in the fiscal burden on the private sector. I urge you to let our businesses stabilize, regain their confidence in the future and work their way back to a point where they can invest in the future and in new jobs. 

Let me offer alternatives to higher taxes. Before I do that, though, let me quickly summarize just how bad our economic situation is, and why we cannot afford any increases in the burden of government.

First, here are some numbers that show how bad our state's economy is:

  • Our private sector is 83 percent of the state's economy. This is a smaller private sector than 43 other states. It makes us one of the most government-dependent states in the country.
  • Over the past five years, the private sector in the Wyoming economy has gone backwards, with an average growth rate of -1.5 percent per year. Only Alaska has a worse record, and they are only marginally behind us.
  • In the first quarter of 2017, our state economy had the worst growth of any state, at -3.7 percent. 
  • Personal income growth is the worst of all states, at -0.4 percent in the fourth quarter of 2016.
  • Per-capita disposable income growth has been the second worst of all states two years in a row: -0.4 percent in 2015 and -0.6 percent in 2016.
  • In 2016, our population declined by -0.2 percent, ranking us 46th in the nation. 
  • We have the largest Government Employment Ratio of all states. This means we have more government workers per 1,000 private employees than every other state, including liberal-run states like California, New York and Connecticut, and other rural states like Alaska and the Dakotas. 

With all this in mind, it is clear that we cannot raise taxes. To further explain the case against higher taxes, consider these points:

  • Average private-sector, non-minerals jobs pay $37,000 per year. Families with incomes at that level have no margins for higher taxes.
  • To close the current budget deficit with higher taxes, you need to take at least $400 million more from taxpayers; about $500 million if we adjust for negative dynamic effects from the tax increases. A conservative estimate says this amounts to $800 for every man, woman and child in Wyoming. Depending on the profile of the tax increases, the burden will spread differently, but at the end of the day, every tax trickles down to families, who are employees, entrepreneurs, investors and taxpayers. Can the average family in Wyoming, with two parents and two children, afford another $3,200 per year in combined increased cost of living and lost income?
  • The Wyoming tax base, which in its broadest definition is the private sector of current-price GDP, declined for eight quarters in a row through 2015 and 2016. During that period it lost eight percent of its total value.
  • In the first quarter of 2017, current-price GDP increased by 4.3 percent. At the same time, inflation-adjusted GDP fell by 3.7 percent. This sends a stern warning to the legislature: do not be fooled by inflation into believing that the economy is growing again.

Instead of tax increases, here is a short version of my suggestions (you can find a long-version of my reform program here):

Short term reforms
  1. A comprehensive efficiency study, and implementation of its findings;
  2. Transparency reform of state and local governments;
  3. A pledge from all legislators and future gubernatorial candidates not to raise taxes.

The first two items would significantly slim down government operations and create budgetary room for long-term reforms. The third item would help restore people's confidence in our state's future and show that it is worth investing, working and living in Wyoming.

Long-term reforms
  1. Parental choice in K-12 education; this brings valuable cost savings as well as new educational opportunities and thousands of new private-sector jobs to our state; research shows that students who have gone through school under parental choice are 25 percent more likely to start a business than other students;
  2. Statewide regulatory overhaul both at the state level and locally;
  3. Separation of I-80 from the rest of the state budget by means of tolling and public-private partnership;
  4. Health-care freedom reform: 
    1. roll back our state's crawling socialization of the hospital sector; open the state to a nationwide insurance market;
    2. vouchers and other free-market reforms to Medicaid.

With these reforms, Wyoming would become an economic powerhouse and a role model for other states to follow.

Thank you for your time and for your legislative service to our state. 


Sven R Larson

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