Friday, September 29, 2017

Wyoming The Tax Hike State, Part 2

Yesterday I gave an overview of what tax increases we can expect at the state level: tallying up the worst-case, but increasingly likely scenario, we are looking at half-a-billion dollars in higher taxes. This tax shock - which, I repeat, is no longer unrealistic but increasingly probable - would probably be introduced over two years and would come in the form of assorted "small increases" this year and an entirely new tax the year after. 

In other words, it would be foolish - to say the least - to dismiss this scenario as something not-gonna-happen absurd concoction of conspiracy theorists. This is Taxmageddon on the horizon.

As if the threat of half a billion dollars in higher state taxes is not enough, the local governments across our state are desperately trying to get their hands on more revenue. (Because cutting spending, like eating children, is wrong...) Later on in this article, I will go through the proposals from Wyoming Association of Municipalities. Before I do, though, I would like to address one issue related to this that I find very disturbing. 

It has been brought to my attention that the fight over the sales tax increase in Campbell County has descended from a civilized but vigorous debate to instances of outright bullying and - potentially - illegal activities. I have been made aware of specific events that have taken place, and specific actions taken by identified persons, that paint a picture of intimidation efforts from tax proponents.

This is a delicate matter to discuss, and for now I am not going to be more specific about the situation in Campbell County. However, I have in my possession material describing how opponents to a sales tax increase have been made to suffer both emotionally and financially - potentially by illegal measures - precisely because they oppose the tax increase.

I have been involved in, or worked with, politics one way or the other for most of my adult life. This is not my first rodeo. I am very familiar with the dark underbelly of politics. But that does not excuse intimidation and other sleazy, authoritarian efforts to silence opponents. Every time it happens, it only shows that the bullies lack the arguments necessary to win an honest debate. 

I hope what has happened in Campbell County will stop. I am not the only person who is keeping an eye on the political practices up there. I hope the residents of that county will be allowed to wrap up the discussion about the sales tax under decent, respectful and honorable circumstances.  

Generally speaking, the use of bullying tactics shows how desperate people can get once they become dependent on tax revenue for their livelihood. But even if we step away from the ugly side of politics, there is a general sense of desperation among those who depend on taxpayers for their livelihood. One example of this is the long list of demands from the Wyoming Association of Municipalities, adopted by the organization back in June. Here are the six tax demands they make, all of which we can expect to appear in bill form, as is or modified, during the upcoming legislative session - and all of which are aimed at generating new revenue exclusively for local governments:

1. Funding for "economic development and economic diversification efforts." Without much specificity, it is difficult to put a number on this tax, but the proposal goes hand in glove with what Governor Mead and his ENDOW group seem to want to get done. The risk, of course, is that WAM get extra "economic development" funds, outside of what the state would spend on the Bucking Tax Airlines project and even more workforce development programs

2. Raise the malt beverage tax. WAM claims that at two cents, our tax is extremely low compared to a 28-cent national average. It is hard to see what revenue enhancement WAM is expecting here; in 2015, according to the Census Bureau, alcoholic beverage taxes in general generated less than $2 million in state revenue. In order to make any revenue difference, the malt beverage tax would have to go up so dramatically that it would drastically affect sales. That, in turn, would defeat the purpose of the tax increase. 

I might also add that there is something distasteful with a government that wants to pay for its supposedly virtuous spending programs by relying on people's consumption of potentially harmful and addictive products. 

3. Reinstate the food tax. This idea really worries me. Wyoming families spend about $2 billion a year on groceries that would fall under this tax (under its broadest definition). It is impossible for government, state or local, to raise any noticeable amount of revenue out of this category of consumer spending without directly hurting low-income families. A 2.5-percent food tax would raise $50 million under static calculations; this is the ballpark where a food tax would have to land in order to "be worth the while", given the legislative fight it would require. 

If we take into account that private non-minerals employees make about $37,000 per year, on average, and we do not take into account any other tax increases, it is very likely that even a tax at 2-3 percent would cause shifts in consumer spending. As a result, static revenue projections for this tax would disappoint. 

4. Here, we combine two tax proposals into one: a removal of the "transient lodging tax exemption" and the expansion of the occupancy tax to cover accommodations sold online. The idea, of course, is to milk tourists for more money, but it would also hurt intra-state business travels. 

5. The creation of a General Revenue Tax. This is WAM's version of the Gross Receipts Tax. For the first time, we actually have a number to work with: WAM suggests a tax of two percent of general revenue. I predicted a tax in this ballpark earlier this year, when the Gross Receipts Tax was first mentioned. 

Let us not beat about the bush anymore. This is an income tax by another name. It would be honest of its proponents to come clean and just ask for an income tax, but as long as they try to pretend that this is not what they are asking for, we will have to call them out on it every time this tax pops up under any of its various names. Alas, a two-percent Gross Revenue/Receipts/Product Tax would potentially apply to the entire private sector of the Wyoming economy. If so, it would be levied on about $31.6 billion worth of business activity. 

No tax applies generally without adjustments and exemptions (for one, how will a GRT handle pass-through businesses?), which makes the actual estimate of its tax base a bit tricky. But let us assume that it covers two thirds of our state's private-sector output. This would, roughly, amount to a tax base of $21 billion. A two-percent tax collection on that big of a base would generate - statically - $420 million. This would go a long way toward covering the tax demands at the state level.

The problem is the apparently very deep hunger for new tax revenue at the local level. Local governments are responsible for about 46 percent of total government spending in our state (not counting the federal government). In theory, this would mean that their demand for new revenue would be 46 percent of all the demands for more tax revenue between the state and local governments. If so, they would be out to get their hands on some $400 million in new tax revenue. 

That, however, is probably an exaggerated number. To begin with, local governments get approximately 38 percent of their revenue from the state, which effectively means that the state bankrolls 72 precent of all non-federal government spending in Wyoming. This changes the funding balance, reducing the direct demands from local governments to approximately $200 million (assuming, again, that local governments in general believe themselves to be in a similar fiscal situation as the state). 

With this estimate, we are looking at demands for higher taxes from the state, from counties, school districts, cities and towns that would total $650-750 million.  

However, before anyone takes this number as gospel, let us mitigate it by noting that the recalibration efforts in school funding, included in yesterday's estimate of state-level tax hikes, overlaps with demand from local governments. It remains unclear how much money local governments actually say they need here on a permanent basis, but a reasonable ballpark figure would be $200 million. If we take this out of the number above, we are back to the same amount that we reported yesterday: an approximate, permanent increase in taxes by $450-550 million.

That is not to say that the local governments would not try to get away with much more than what they "need". The real worry here is the two-step approach to tax hikes, according to which

-in 2018 we would see assorted "small" increases in sales, excise and property taxes, and possibly the reintroduction of a "very low" food tax;
-in 2019, the Gross Receipts/Revenue Tax would go into effect. 

If this happens, the static increase in taxes could easily exceed half-a-billion dollars by a sizable margin. 

On top that, we have the macroeconomic effects of such stupid (pardon my Swedish) ideas as a food tax and the GRT. Both of them - which would probably be in the two-percent range - would quickly and mercilessly strike at lower-income families all across the state. 

Which brings us to the combined effects of all the stat and local tax proposals. Higher taxes on consumption, business activities and property will hit our economy from so many angles, in such a short time, that the only likely scenario is a depression of economic activity.

Taxmageddon, for short. 

It is time for our legislative leadership, and especially for Governor Mead, to come clean and tell us: 

By how many hundreds of millions of dollars are you willing to raise taxes during the next legislative session? 

1 comment:

  1. Taxes are a part of living in a civilized society, that is what we pay together to get things done for the good of all the people. That being said we need to understand why are the taxes needed? Well to start let us do some examinations on cause and effect, Start with mandated Federal guidelines for everything we do, almost, unfunded and unregulated we are forced to adhere to them! Schools, EPA, Clean energy, Ethanol, just to name a few. So let us start with that!