Monday, July 17, 2017

Wyoming Closer to Taxmageddon

On August 2-3 the Joint Revenue Committee is meeting in Thermopolis. Their agenda, which you can read here, is filled to the brim with proposals to raise taxes, and - just to top it off - higher fees. 

So long as their agenda remains the subject of a dinner conversation among welfare-statist friends, it will do no harm to Wyoming. But when the Revenue Committee meets, it is not to have dinner. It is to mark the beginning of a new tax policy for our state. 

As such, their agenda is the very opposite of what our state needs. Let us take a quick walk through it, item by item.

1. Gross Receipts Tax. I have analyzed and discussed this tax numerous times - here is a list of eleven articles - and my main point of criticism remains: it is an undue burden on Wyoming businesses at a time when many of those businesses can barely even pay the employees they have, let alone create new jobs. 

To fully appreciate the dangers with, and the impact of, the GRT, think of it as a clever proxy for an income tax. Furthermore, keep in mind that in order to make a difference to the state's deficit (if we accept for a moment the absurd idea that we could tax ourselves to a balanced budget) the tax rate would have to be about three times as high as the GRT in Ohio. Called a Commercial Activities Tax, the Ohio equivalent also replaced other taxes burdening businesses; here in Wyoming, the GRT would come on top of other taxes our businesses already pay.

A question for all you business owners out there: how much of your monthly revenue can you sacrifice to government, and still pay all other taxes and all other operating expenses, including your employees? After all, that is exactly the question that the GRT would ask you. The only difference is, the GRT would not let you answer the question. It would answer it for you.

2. Broadening State Sales Tax. Here, the idea is to expand the sales tax to include "some services" as originally proposed in the Tax Reform 2000 Report. Here as some sectors that the 2000 report includes in its scenario for a broadened sales tax: agriclture services, transportation, storage, utilities, personal services, business services, health care, legal services, social services and engineering consulting. 

The sales-tax revenue estimates from the 2000 report are, of course, of no interest today, but the idea of expanding the sales tax to cover these industries will apparently be on the Revenue Committee's agenda. A rough estimate - it cannot be better than that since we do not have the details yet - suggests that if the committee would expand the state sales tax to cover all these industries, just the sales-tax expansion would cover one third of the Wyoming economy. 

It remains to be seen what exactly the Committee proposes in terms of sales-tax expansion. They may go all-out, or they may settle for only a small fraction. What is important here and now is to appreciate the potential magnitude of the tax expansion that the Committee will be discussing.

3. Property Tax Structure - Fairness on Property Taxation. The short story here is that the Committee will discuss what types of property are exempt from property taxation today, and how the state could possibly impose a property tax on them. The point would be, plainly, to consider removing property tax exemptions, such as for charitable organizations. 

4. Liquor Fees and Markups; Beer and Cigarette Taxes. It is remarkably popular among legislators to impose, and then raise, taxes on non-virtuous behavior. Surely, having a beer or a glass of wine is not in itself a non-virtuous act, but the normal consumption of alcoholic beverages is different from the kind of taxation that these alcohol-targeting taxes go after. People who have beer or wine just as they have lemonade, mineral water or a Pepsi, consume those drinks as part of their groceries consumption. If, therefore, we think of alcoholic beverages as part of groceries, they fall under the same tax exemption as groceries do. 

Alcohol-targeting taxes do not give alcoholic beverages this treatment. The idea here is instead that alcoholic beverages are "different", and that the difference is one of virtue. A tax on these products is aimed at discouraging, or limiting, consumption of these products and to stigmatize them as "sinful". In reality, though, this social-engineering motive has taken a back seat to the state's zest for tax revenue: what was originally a "sin tax" has now turned into an "addiction tax" where the state relies on regular, and generous, consumption of alcoholic beverages so that the state can continue to pay for its expenditures. 

To be blunt, yet accurate: the alcoholic is better for the state's tax revenue than the teetotaler. 

The sin-to-addiction shift in taxation is even more obvious when it comes to cigarette taxes. Unlike alcohol, even moderate consumption of tobacco has harmful health effects. If the cigarette tax were meant to discourage consumption, it would not be on the table when the Revenue Committee is discussing ways to raise more revenue; whatever the state takes in from it would be earmarked exclusively to cover health care costs - public and private - for treating tobacco-related illnesses.

That is not the case here. Therefore, the only reasonable conclusion is that the state is relying on the addictive nature of tobacco to top off its coffers on a permanent basis. The more you smoke, the more your elected officials will appreciate your sacrifice for the good of government.

5. Wind Energy Production Taxes. One of the strongest supporters of this tax is Senator Case. In a June 28 op-ed for the Casper Star Tribune, Senator Case explained:
Climate change is happening, and responsibly pursuing renewables is part of the solution. Reports on warming temperatures, melting icecaps and rising sea levels are far too familiar ... If we develop wind, let’s do it on our terms, so our temporary feelings of excitement do not become permanent regrets later on. ... The long-term need for greener electricity and our timeless winds are why our great-grandchildren may never experience many of our beautiful Wyoming vistas as the indigenous peoples and pioneers did and the way we do now. ... It is vitally important future generations receive a fair payment for their loss. Yes, support wind energy, but also support raising the Wyoming wind tax to ½ cent per kilowatt hour (kWh). This is a fraction of the federal subsidies wind developers are raking in, and a minuscule amount to pass on to West Coasters who are already paying $.20/kWh to heat their jacuzzis at the expense of our vistas. In a time when we are trying to close a funding gap to educate Wyoming’s future leaders, an increase in the wind tax is needed.
 I have known Senator Case for many years. He is an intelligent man whose fiscal conservatism I have rarely had any doubts about. But on this issue, he is wrong (and I am not even going to comment on the science-fiction story known as "climate change"). 

A preliminary estimate suggests that if federal wind subsidies went away, it would be very difficult for wind farms to survive on the open electricity market. Without the subsidies, the cost of producing and distributing wind energy could exceed current market prices for electricity. There is no doubt that when the federal government is faced with a fiscal-panic situation over its endless deficits; and if Trump's tax reform dies on Capitol Hill; in a few short years Congress will find itself pushed up against the wall and forced to make harsh, quick spending cuts (and tax hikes) without much concern for their long term ramifications. 

When that happens, rest assure that wind-energy subsidies will be among the first items on the fiscal chopping block. When those subsidies go away, what economic case will there be for wind energy in Wyoming?

Unless the Revenue Committee can soundly refute this scenario, it would be wise of them to disagree with Senator Case.

It is extremely unlikely that the Revenue Committee will come out of its August 2-3 meeting in Thermopolis proposing all the tax increases listed here. Much more likely is that it will choose between a Gross Receipts Tax and a sales tax expansion, then add on a property-tax expansion or a wind energy tax. The difference, however, is of no major consequence: a drastic expansion of the sales tax makes the consumer the primary source of new tax revenue, while a GRT targets business owners. In the end, though, the money comes out of the same pockets: with a GRT, businesses cannot afford to pay their employees as much, and/or will have to raise prices. 

Either way, the tax buck stops with Wyoming families.

How much can your family afford in higher taxes?

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