There are many myths regarding public policy. Those myths are particularly prevalent among people who purport to do economic research. One of those myths says that when you study Wyoming taxes you have to remove severance taxes from the equation because Wyoming is so exceptionally dependent on those; severance taxes, it is said, make Wyoming look like a high tax state when in reality it is not.
The problem with this argument is that it is – yes – a myth. Wyoming is not nearly as dependent on severance taxes as most people think. According to the latest state tax revenue report from the Census Bureau, the state of Wyoming collected $868 million in severance tax revenues in the fiscal year that ended in 2013. That amounts to 39.7 percent of total state tax revenues.
By comparison, the state collected $826 million in sales and gross receipts taxes, accounting for 37.8 percent of all state tax revenues.
Technically, the severance tax is the largest tax revenue source for Wyoming. But does not that mean that we are unusually dependent on this tax? No, it does not. First of all, again: sales and gross receipts taxes are about as important as the severance tax, and they tend to yield a steadier revenue stream than the volatile severance tax. This would actually make sales and receipts taxes more important, since they are more reliable as a revenue stream.
Secondly, if we should disregard severance taxes because of their supposedly dominant role in state revenue, then what do we do with Florida and South Dakota? There, sales and gross receipts taxes provide, respectively, 82.5 and 80 percent of all state revenue. (These numbers are higher than Alaska's 78.3-percent dependency on severance taxes.) In 36 states, sales and gross receipts taxes pay 40 cents or more of every dollar in state tax revenue.
There is more. Eighteen states depend more on the individual income tax than Wyoming does on the severance tax. In five states the individual income tax accounts for more than half of all state tax revenue: Oregon (68.3 percent), Virginia (56.8), New York (54.6), Massachusetts (53.9) and California (50.2).
There is a third reason for not excluding severance taxes when looking at the Wyoming tax burden. How do you explain all the government spending that comes out the other end of the state budget?