On Thursday June 14, the Heritage Foundation releases its “Taxmageddon” report. Taxmageddon is a $494-billion tax increase waiting to hit the U.S. economy on January 1, 2013. Time is running out for Congress to prevent this disaster, but even if it does, the Wyoming economy could be hit by its own hailstorm of tax hikes.
The Wyoming Tribune Eagle reports (Wednesday June 13):
An increase in the state’s fuel tax is on the table. Toll roads are not. On Tuesday a state legislative supercommittee reviewed ways to raise money for Wyoming highways. The group will develop a draft bill for state lawmakers to consider in 2013. The draft bill will include a proposal for a higher gasoline tax, based on the committee’s direction. The amount has not been determined. It will also include increases in motor vehicle registration and driver license and services fees. It will apply a sales tax to fuel, too.
A higher gasoline tax is nothing new. In October 2010 the Transportation Committee sponsored a bill that would phase in a ten-cent increase over three years. The idea was to take the state gasoline tax to 24 cents per gallon. Conservative estimates showed that the higher tax would cost drivers $35 million extra per year, though some estimates suggested higher numbers.
These proposals are not the only ones that will raise our taxes. The 2012 legislative session authorized counties to seek voter approval for a one-cent increase in sales taxes. At the end of the legislative session some legislators also speculated about a one-cent increase in the state sales tax.
It is not good for Wyoming that whenever our legislators talk about our economy, their conversation centers in on tax increases. This is not a good trend, especially since there is a risk that the state will face spending cuts up to $75 million.
When spending cuts are coupled with tax cuts they are good for the economy. When spending cuts are coupled with higher taxes, the opposite is true. This combination increases government’s drainage of resources from the economy. Government is a burden on the private sector already as it is; we don’t need to increase that burden by having government take more of our money and give even less back.
Even if at the end of the day there will be no spending cuts, higher taxes will be bad enough for the Wyoming economy. It is fair to assume that the gasoline tax increase would be somewhere in the neighborhood of the 2010 proposal, phased in over three years. Furthermore, let us also assume that all counties vote to raise the sales taxes by one percent. Lastly, we add a one-cent state sales tax increase and allow the higher total sales tax to cover gasoline as well.
A simulation using a so called CGE macroeconomic model of the Wyoming economy gives a rather disturbing picture of what these proposed tax increases would do to the Wyoming economy. The following numbers are for 2015 and compare to a scenario without any tax increases:
- There will be 6,800 fewer private-sector jobs;
- Private corporate investments will be $110 million lower;
- Wyoming families will have $458 million less in disposable income;
- Local governments will see a net loss of $28 million in tax revenue.
Depending on what type of spending cuts would be added to this, the net effect could be considerably worse.
There is no doubt that Wyoming needs better roads. However, massive tax increases is not the way to pay for them. A much better approach is to build closer ties between road usage and the cost of that usage. A gasoline tax is an imprecise instrument in this respect: the gasoline tax affects all drivers, even those who do mostly local driving. At the same time, interstate drivers are increasingly able to get through the state without paying anything for using our highways. More and more passenger cars can, for example, travel the entire stretch of the I-80 through Wyoming without filling up even once, leaving Wyoming drivers with the entire bill for road maintenance.
The tax hikes currently being discussed will actually increase the incentives of out-of-state drivers to avoid a gas fill-up within our borders. This makes it even more surprising that our legislators are entirely unwilling to consider a tolling system or find cost reductions.
By talking tax increases and generic spending cuts, our elected officials are showing us that they are stuck in the same old conventional thinking about government’s role in the economy. Rather than trying to squeeze a fiscally obese government into an economy that is already too small to fit into, our lawmakers should reconsider what role government should actually play in our economy. A smaller, leaner government with fewer spending programs is more able to focus on such things as highway maintenance–and the net burden on taxpayers would go down in the bargain.
The road to a smaller, leaner government goes through principles-based, thoughtfully executed structural elimination of entitlement programs. That takes time, but Wyoming has the financial padding to take that time. Best of all, the payoff from concentrating government to non-redistributive functions are enormous for the state economy.