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Is Wyoming Really Number One?

by Keith Trimels

Governor Mead’s 2012 State of the State speech listed a litany of good news stories.  One of those was that The Tax Foundation placed Wyoming as the number one “good tax climate” state.

This implies taxes in Wyoming are better than anywhere else in the U.S.

But is this really true?

As with most things in politics, the answer is not so clear.  Here’s why.

What is the State Business Tax Climate Report?

The Tax Foundation has produced their State Business Tax Climate report for 8 years.  If you’re like me, you probably assumed it measured tax liabilities within the state.  In other words, 1st place = lowest taxes.

But according to Mark Robyn, the report’s author, the report “is looking at the tax laws in a state.”  About 120 different laws to be precise.  This doesn’t necessarily mean just tax rates alone but how fairly the tax laws are applied to every citizen and business.

Further, the report ranks states relative to each other.  So, in comparing tax loopholes that benefit a particular business or industry in a state like Wyoming with those in a state with a lot of lobbyists like New York, you can see why Wyoming might rate higher.

The Rest of the Story

There’s another elephant in the room no one mentioned — yet.  This year, the Tax Foundation changed the methodology used to create the rankings.

From 2009 to 2011, Wyoming fell from 1st to 3rd on the annual State Business Tax Climate report.

Yet when The Tax Foundation changed its ranking calculations, then recalculated the 2011 rankings, Wyoming jumped from 3rd to 1st.   So without any improvement on our part, just by calculating things differently, we are once again number one.

Further, the State Business Tax Climate rankings are calculated with different weights applied to different taxes.  So of the five major components…

  • Individual Income Tax
  • Corporate Tax
  • Sales Tax
  • Property Tax
  • Unemployment Insurance Tax

… the individual and corporate income tax account for more than 50% of a state’s score.

For a state like Wyoming, where we have no individual or corporate income tax, that means we score better in those heavily weighted factors.  In fact, 9 out of the top 10 states in the 2012 State Business Tax Climate ranking have a 0% rate for income, corporate, and/or sales tax rates.

But our number one overall ranking hides a few flaws.  If you look at the other three big taxes, Wyoming is outside the top 10 in sales tax, is in the BOTTOM HALF of the unemployment insurance tax, and the BOTTOM THIRD of the property tax.

 And that property tax ranking is where The Tax Foundation puts things like inheritance and estate taxes.  You know, the death taxes you pay from beyond the grave.

Wyoming Liberty Group economist Sven Larson reported on CNBC’s 2011 Cost of Doing Business report.  He writes:

 Our overall business climate ranking is an unimpressive 21st, and in terms of the cost of doing business, we are now ranked 34th in the country – the bottom third!  We also rank very poorly in access to capital (35th), infrastructure (38th) and technology and innovation (dead last).

So What Does This Mean?

Economist and statisticians know you can make numbers say almost anything you want — like changing a ranking from 3rd to 1st by changing only a calculation.

But when you understand where those numbers come from, you can better determine if somebody is trying to sell you an alternate reality — especially a politician.

So here are a couple of reality checks to get a bit of perspective before Wyoming basks too long it its number one  overall ranking.

First, outside of minerals and oil and gas, our economy is neither particularly strong nor stable.

Second, if we believe we don’t need to improve our tax or business climate, we’ll find ourselves falling behind to more competitive states — states like South Dakota, for instance.

What this means is our economy will continue to lag further behind these states.

Then, because The Tax Foundation ranking is relative to those other states, we could drop from #1 faster than the changed calculations pushed us back to the top.

Would our elected officials then be publicizing that drop as they’ve publicized this jump?

Keith Trimels, P.E., IDT Group and occasional blogger for the Wyoming Liberty Group

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