What Is the Legislature’s Fiscal Policy Strategy?

by Wyoming Liberty Group Staff

The legislature is now past the deadline for moving bills out of their chamber of origin, and we can take inventory of the bills that proposed tax increases. The long story short is that our elected officials appear to have been listening to the opposition to tax hikes. The following bills that were written to raise your taxes, are dead:

HB64: Indexing the fuel tax – was not considered for introduction in the House

HB67: Sales tax on services and food – No report prior to Committee of the Whole (CoW) cutoff

HB68: Nine-milling property tax hike – Was not considered for introduction

HB96: The windmill tax – Was not considered for introduction

HB126: Tax recalibration – Never made it to CoW

HB218: Tobacco tax – Postponed indefinitely

HB233: Personal income tax – No report prior to CoW cutoff

It was especially relieving to see that HB126 failed. This is also a bit surprising, a point we will get back to in a moment. First, let us note three tax bills that did make it:

HB66: The lodging tax – has been received for introduction in the Senate

HB220: Corporate income tax – Received for introduction in the Senate

SF51: Tobacco tax equivalency – Introduced in the House, referred to Revenue Committee

It is troubling that the two House bills both target tourism in Wyoming. HB220 introduces a seven-percent income tax on large corporations in retail, accommodation and food services, while HB66 adds a five-percent tax on the sales of "tourism" services in Wyoming.

Businesses targeted by the income tax are not going to be able to just transfer the tax burden from their domicile states. There will be a direct negative impact on large retail businesses, but for the lodging businesses, the outlook is even worse, as they also have to bear the burden of the five-percent sales tax that HB66 aims at them specifically.

Overall, though, it was a relief to see that most bills raising and creating new taxes failed. That said, it is puzzling to see how the legislature in general appears to be locked down in some kind of fiscal impasse:

• On the one hand, its members seem oddly opposed to even introducing bills that discuss structural spending reforms; the closest this session got was HB172, which proposed a budget stabilization mechanism to curb spending excesses during times of strong tax revenue; it died in the House;
• On the other hand, while failing to approve several tax bills, the House also rejected the one bill that wanted to systemically analyze the Wyoming tax system.

There is, in other words, no action on either side of a state budget that is plagued by a structural deficit. Is there a long-term fiscal policy strategy that the legislature is not revealing in its actions? Or are our lawmakers simply not ready or willing to address the problem with our state's overly costly government?

This is not the first session where major bills to raise taxes have moved on to greener pastures. Last year's Taxmageddon package would have imposed almost half-a-billion dollars of higher taxes on the Wyoming economy; this year's round of tax hikes was a scale-back by comparison (although HB220 could still cause major problems if passed into law). Hopefully, though, this will be the last session where focus in fiscal policy is squarely on the revenue side.

In addition to principled arguments against higher taxes, there are compelling macroeconomic arguments that are not given enough attention. The tax base that advocates of higher taxes want to go after is weaker than most high-tax proponents seem to believe. Specifically, personal income – out of which the money would come for almost every tax hike proposed this session – is not growing very well. The latest data from the Bureau of Economic Analysis reveals a long-term weakness in personal-income growth in Wyoming:

Source: Bureau of Economic Analysis

Fifteen years ago, the annual growth rate in personal income in our state easily exceeded ten percent. In the last growth period, 2003-2008, personal income grew at an average of nine percent per year – more than twice its current growth rate.

In fact, in the past six years, from the third quarter of 2012 to the third quarter of 2018, the growth rate has been a measly 2.2 percent per year.

That is barely enough for families to stay afloat in the face of inflation. Any increase in the cost of government (sales tax on services, sales tax on food, indexed fuel tax, income tax on employers) would erode the standard of living in our state.

But wait – there is more. Not only is personal income growing slowly, but its composition is not favorable for any government considering higher taxes. Over the past ten years, work-based income – wages, salaries and benefits – have declined as share of household earnings:*

• In 2008, wages, salaries and benefits accounted for 61 percent of personal income earned by Wyoming residents; personal current transfers (such as welfare and Social Security) contributed 12 percent while income from investments (dividends, interest and rent) added up to 28 percent;
• In 2018, wages, salaries and benefits had declined to 52 percent, with 14 percent coming from transfers and 32 percent from investments.

The plain message in these numbers is that working families are not getting ahead; what keeps our state's households going are earnings from investment portfolios (predominantly wealthy residents) and tax-funded handouts and Social Security checks (predominantly low-income households). In other words, our state is witnessing income stratification where the middle class is losing out.

And yet, they are precisely the ones that most of the tax bills filed in this legislative session would have targeted. Now that most of those bills have failed, perhaps Wyoming is ready for a conversation about reforms to the other side of the budget?

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*) Not accounting for rounding errors in the raw data.