Sunday, September 3, 2017

Wyoming Is Still Not A Low-Tax State

In August, this blog had 9,000 hits. That is an all-time-high, and 50 percent up from the legislative session. Readership is increasing monthly. 

To all readers: Thank you!! You make it all worth it!

Even though today is Labor Day, politics does not stop moving, especially in the direction of higher taxes. The debate over our state's economic future continues to heat up, and focus is still very much on having the state government somehow engineer that future. The latest contribution is from the Wyoming Tribune Eagle, whose Saturday article is a well-designed pitch for higher taxes. 

Here is how they go about it. They start by giving plenty of room for Jeremiah Rieman, Governor Mead's director of economic diversification strategy, to explain all the virtues with the governor's ENDOW initiative. The working group behind the initiative presented their report last week, whereupon Rieman opined (WTE Saturday print edition):
I do believe it will be necessary, if not critical, to take some actions and make some investments along the path of ENDOW that we may not even realize for 20 or more years," Rieman said. "I do come to you with a sense that the ENDOW mission is achievable. The council indicates overwhelming optimism as it relates to the path forward."
So, what exactly does the report want the state to do?
Wyoming has great accolades in terms of the number of business startups. Wyoming’s past economic development  planning,  however,  has  not  focused  enough on innovation and entrepreneurship.  We are  near the  bottom  in terms  of  attracting venture  capital  and need  to turn that  around. Accessing federal  research  and  development  funding  and  transferring  technologies  from  the University  to commercialization  activity  need  improvement.  The  Council  is  looking  at  how  to attract,  grow  and inspire  entrepreneurs  and provide  them  the  space, capital,  support,  expertise and mentorship they need to solve the world’s problems.
Finally, someone else except me who notices that Wyoming ranks dead last in supply of venture capital. However, the ENDOW initiative then draws the exact wrong conclusions: we should not find out why venture capitalists shy away from Wyoming, but instead get as much tax money as we can from the federal government. Then, says the ENDOW report, it should be government's role to pick and choose what "technologies" (apparently, there are many) should be transferred from the academic research world to profitable business applications. 

It might be worth pointing out that Microsoft, Apple, Google, Facebook and other computer and communications technology giants emerged because nerdy entrepreneurs had nerdy ideas that they spent 24 hours a day nurturing without the interference of government. Likewise, Ford did not become the world's most productive manufacturer a century ago because government somehow transferred the assembly-line idea from some college to Henry Ford. No, that was again the work of a free-minded entrepreneur, operating in the realm of economic freedom.

There is a lot more to be said about the ENDOW report, which we will get back to later. First, though, let us continue through the Tribune Eagle's not-so-subtle push for higher taxes. Having spent a generous part of its front page on giving Mr. Rieman ample room to market the ENDOW initiative, on page 2 the paper lets Rieman defend the ENDOW initiative against the predictable arguments that the state has no money in its coffers for all the spending programs that the ENDOW report - without even an effort at economic analysis - suggests are vital to our state's survival:
"I do want to say from the beginning that this effort demands our support, regardless of the state's revenue picture, regardless of commodity prices or changes in the administration. If we don't, we'll pay the risk in the days forward," Rieman said. 
Alas, it is time to bash those who are opposed to higher taxes:
One key recurring issue for lawmakers to consider in 2018 is whether to raise taxes in order to stabilize the state's revenue stream and make up for its current deficits. Tax increases have never been favored among Wyoming's overwhelmingly conservative legislators, but the conversation is heating up as the session approaches.
It is nice to hear that the newspaper has such faith in the conservatism of our elected officials. That aside, though, the paper turns its attention to one of the few outspoken legislative opponents to higher taxes:
Rep. Chuck Gray, R-Casper, ... firmly asserted his position that he would not vote for any tax increases in Wyoming. "One of the reasons I've been so passionate about controlling expenditures and making sure we stop this tax increase approach that's been circulating is from a diversification perspective," Gray said. "The worst thing you can do, in my view, is to raise taxes."
Now that Gray, himself an entrepreneur in the media business, has spoken out against higher taxes, the paper turns the stage back to the governor's ENDOW crew. This time, they want to make it sound as though we actually need to raise taxes in order to attract business investments:
in the ENDOW initiative's consultations with industry leaders, something to the contrary has been suggested, Rieman said. Though Wyoming has a low tax burden, he said those industry leaders point out business still continues to go to states such as California and Colorado that have higher taxes.
No, I'm sorry, but Wyoming is not a low-tax state. That is a myth that has been spread around the state for far too long. To begin with, there is the false notion that we, the residents of Wyoming, only pay for a fraction of our government. That is utterly false, plain and simple. 

Furthermore, our state and local tax burden is actually higher than the average in the country. Key Policy Data has a nicely designed database for the measurement of the size of government. It now even includes the Government Employment Ratio that I introduced seven years ago as a measurement of the size of government (though their version is not nearly as frequently updated as mine). Among their foremost metrics is the total state and local tax burden, where total taxes collected by the state and all local governments are measured against private-sector personal income (not counting transfers such as Social Security checks and Medicare services). 

This is one of the best methods for measuring how much government taxpayers in a state can muster. By this metric, in 2015 - the latest year for which relevant tax data is available - Wyoming ranked 17th. In other words, we had the 17th highest state and local government tax burden in the country. We were ahead of such prominent high-tax states as Illinois and Connecticut, and we are above the national average. 

The myth of low taxes is based on such studies as the "tax climate" rankings dispensed annually by the Tax Foundation. The problem with the Tax Foundation's metrics is that they count the absence of an income tax as having a disproportionately positive effect on a state's economy. They ignore two major issues that, among others, I and Key Policy Data take into account: the fact that sales and property taxes often affect long-term cost of living more than an income tax - and that property taxes can be particularly burdensome to businesses; and the fact that Wyoming has the highest share of government employees in its workforce. 

It is important to understand the meaning of the last point. The Tax Foundation ignores the fact that a government employee - who no doubt is a taxpayer - pays for his share of state and local taxes with already-taxed money (his salary). He gets paid by taxpayers for the part of his salary that, in turn, is used to pay taxes. In other words: private-sector employees have to give up more of their paycheck so that the tax-paid government employee can pay taxes out of his paycheck.

This is a technical point; it is not a criticism of government employees. That said, it is a point that we cannot ignore if we want to understand the actual, real impact of taxes on our economy. This is also why I always use private-sector economic performance metrics when I discuss where our state is heading. Our state has the highest Government Employment Ratio in the country, and given the income difference between a state government employee and a non-minerals private-sector worker, it is not surprising that our actual tax burden turns out to be as high as it is. 

As for individual taxes, Key Policy Data reports, using the same metric as mentioned above, that:

-We have the 13th highest sales-tax burden, above national average;
-We have the 11th highest property-tax burden, above national average.

It might be worth pointing out that all our neighboring states rank below us in total tax burden. 

If this is not enough to discourage tax hikers, then perhaps this article may make a differenceA troubling new report released this week by the Bureau of Labor Statistics shows that Americans spent more on taxes last year than they did on food and clothing—combined. As the report shows, this problem shows no signs of slowing as the average American’s rate of taxation is increasing at a staggering rate. As CNS News reports, in 2016, according to BLS, “consumer units” (which include families, financially independent individuals, and people living in a single household who share expenses) spent more on average on federal, state and local taxes ($10,489) than they did on food ($7,203) and clothing ($1,803) combined ($9,006).

I am going to dig more deeply into these numbers at a later point in time. For now, with taxes as burdensome as they already are here in Wyoming - as we just saw - there is simply no room in our households' budgets to pay higher taxes. 

To anyone who disagrees with me, I will be debate you anywhere in Wyoming, any time.  

1 comment:

  1. Thanks Sven for citing Key Policy Data. FYI, KPD's tax burden data is up-to-date as of FY 2015 . . . due, of course, to the time lags in the underlying Census data. And our government workforce data will be updated in the next few months as soon as BEA updates their data.