The Tax Foundation has released its annual study of state business tax climates. Once again, Wyoming ranks at the top, a fact that will surely be noted across the state. Last year Governor Mead noted Wyoming’s first-in-the-nation ranking in his State of the State speech.
There is no doubt that The Cowboy State’s premier ranking is something to be happy about, especially since neighboring states Colorado, Idaho and Nebraska rank 18th, 20th and 31st, respectively. At the same time, given other aspects of the Wyoming economy, one has to wonder what good this ranking is actually doing for the state. For one, we also top the nation in government-to-private employees, which indicates that businesses may not be taking as much advantage of our strong business tax climate as one would think.
One answer to the question why we are paradoxically poor in producing private-sector jobs is in the Tax Foundation’s study. While Wyoming ranks first in the nation for its absence of corporate and personal income taxes, we come in 29th in unemployment insurance taxes. This means, in plain English, that while a small business may not have to pay taxes on its income, it is going to pay dearly the day it has to let someone go. For small firms with tight margins, such uncertainty factors can play a big role in their decision as to where to locate.
Another drawback for Wyoming is our property tax system. Ranking 35th, we actually score more poorly here than high-tax states like Michigan, Ohio and Wisconsin.
In all, Wyoming’s business tax system benefits certain types of businesses while punishing others. The lack of income tax attracts most businesses, of course, but only those that are big enough to put up with the burdensome unemployment insurance and the high property taxes will prevail.
In short: Wyoming is good for big business but not for small firms. Since small businesses traditionally are the job creators, this might help explain why our private-sector employment numbers are not better than they are.
It is time for a comprehensive overview of what the Wyoming business tax system actually does. Rather than resting on our laurels as the most business-friendly state in terms of taxes, we should ask ourselves how we do better. After all, we should remember that the Tax Foundation’s ranking system is a relative one: it ranks states compared to one another, not compared to an absolute, ideal tax system. This means that even when a state is not doing that well generally, it can still get a favorable ranking if other states are doing even worse.