Are Wyoming residents capable of paying more taxes as residents in neighboring states do? (FlickrCC / CafeCredit.com)

Columns rarely generate the volume or quality of response elicited by the most recent Madden’s Measure

Well-considered comments and e-mails following the discussion of Wyoming’s excess tax capacity, and the one-page legislative document that measured it, differed widely and reflected all of the various political positions one might expect. But a number of astute readers raised the same valid concern: Our discussion omitted the issue of ability to pay.  

In other words, unless Wyoming residents can actually afford to bridge the gap between what we pay in taxes and what our neighbors pay on average, then tax capacity as measured is just a bunch of empty numbers.

Well, consider it good fortune or mere coincidence, but Joe Schaffer and Nick Colsch — two professionals at Laramie County Community College — have pursued this angle in a paper based on the same article. 

A Policy Brief on Tax Capacity in Wyoming expands the concept of tax capacity to include taxpayer ability to pay and also includes a number of additional considerations.

You’ll recall that tax capacity as discussed in the earlier article was determined based on how much lower Wyoming tax rates are compared to the median tax rates in neighboring states. The larger the difference of Wyoming’s tax rate relative to the median tax rates of neighboring states, the greater the tax capacity. 

Schaffer and Colsch reason in their paper that measuring capacity that way only provides a partial answer to the question. The analysis must be tempered by taxpayers’ ability to pay relative to those residing in comparison states. For example, if household incomes are lower here, or if the cost of living in Wyoming is generally higher, either of these factors could reduce tax capacity. 

In short, the question is whether Wyoming households can afford the tax increases suggested by the excess capacity.

One approach to this issue includes an analysis of median household income and median hourly wages. The neighboring states used in the comparison include all states adjacent to Wyoming plus North Dakota, the same states that were used in determining tax capacity. 

The median household annual income in Wyoming is $65,000. That compares to a median among the seven states in the comparison of $63,229, about $1,800 lower than Wyoming. Household incomes among the comparison states range from a low of $57,153 in Montana to $77,127 in Colorado. Wyoming’s median household income would be the third highest if it was included in the seven-state group.

Median hourly wage is another ability-to-pay metric and much the same conclusion is reached. The seven-state median hourly wage is $18.23, while Wyoming’s median hourly wage is $20.02. Among all states in the comparison, only North Dakota and Colorado have a higher median hourly wage than Wyoming.

The LCCC study also adds a comparison of household income among states without income taxes. Of the 50 states, only Wyoming, South Dakota, Texas, Nevada and Washington have neither an individual nor corporate income tax. Average household income in these states is $63,655. Only Washington’s median household income of $78,687 is greater than Wyoming’s $65,000.

Another standard that is useful to measure varying ability to pay is the state’s cost of living. The higher a state’s cost of living, the lower the ability of its households to absorb additional taxes. Cost of living data comes from the Council for Community and Economic Research’s 2020 Cost of Living Index (COLI). This index captures variations in basic household necessities such as housing, food, utilities and transportation among others. A COLI index of 100 is the 50-state average. 

The median cost of living index among the seven neighboring comparison states is 103.0. Wyoming’s cost of living index is 95.4 or nearly eight percentage points lower than the surrounding seven states. Only Idaho and Nebraska exhibit a lower cost of living than Wyoming. The median cost of living among the four comparison states with no income taxes is 97.0.

To summarize, Wyoming households outearn households in surrounding states, and other states without income taxes, on average. At the same time we enjoy a lower cost of living. 

Together, these factors suggest Wyoming has a higher ability to pay than the comparison states and that ability to pay is not a limiting factor in realizing our excess tax capacity. 

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It is important to emphasize that these analyses are based on state averages. Each household is unique and bears its own financial challenges. For example county-based data in Wyoming shows significant economic differences from one area of the state to another.

In a similar fashion, while it appears that Wyoming has considerable tax capacity in regard to residential property taxes, there are some households with lower than average incomes or fixed retirement income where that would not be true. Therefore, it would be important that if any significant changes in residential property taxes are adopted, the existing tax refund program must be funded and maintained for low income homeowners.

But what of taxation’s role in attracting  new businesses to the state? Wyoming has been ranked for many years as having a favorable tax reputation in the business world. Yet, economic diversification and growth beyond the mineral industry have proven to be elusive. Other factors are far more important than taxes in business-location decisions. Recent research in the area shows that considerations such as transportation amenities, labor cost and availability, quality of life and construction costs are more important than tax rates. Meanwhile, other research concludes that taxes are only a major detriment to economic development in states that have substantially higher rates than the general American norm. 

All of which reinforces the previous conclusion: Because of its favorable tax rates today, Wyoming can alleviate its fiscal crises without using all of its available tax capacity while also maintaining its reputation as a tax friendly state for its citizens and businesses.

Michael Madden

Michael Madden served 12 years in the Wyoming House as a Republican representative from Buffalo, including seven years as chairman of the House Revenue Committee. He is an economist and holds a doctorate...

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19 Comments

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  1. I just read that Idaho’s state government received a $200 million windfall from the federal government to help fund their voter approved Medicaid Expansion. Note: voter approved (by ballot initiative). Their Republican dominated state government refused to approve Medicaid Expansion.

    Here’s some other low hanging fruit: a gas tax on all those big tourist RVs that are crowding our roads.

    Hello, Wyoming politicians? Time to end the stupidity?

  2. Nate Martin, commenting above, may have misunderstood the robust nature of using a median income statistic, but his point still should be considered. How income is distributed matters. Income tax systems are almost universally progressive, which means necessarily that higher income groups provide disproportionately more tax revenue. In our Federal system for example the top 1% probably pays around 40% of the taxes. It is the disporportionate nature of such a system which allows it generate a great deal of revenue without it adversely impacting people of moderate means. I have not looked at Wyoming income distribution, but I doubt it can generate the sort of revenue one might expect in other states because Wyoming has a Gini coefficient suggesting a relatively more compact distribution of income.

    1. Kevin,
      Correct-
      “the top 1% probably pays around 40% of the taxes” but

      According to the latest Fed data, the top 1% of Americans have a combined net worth of $34.2 trillion (or 30.4% of all household wealth in the U.S.), while the bottom 50% of the population holds just $2.1 trillion combined (or 1.9% of all wealth).
      This is why “essential workers”, at minimum wage, see taxes differently than you do.

    2. Kevin T Kilty says: “In our Federal system for example the top 1% probably pays around 40% of the taxes.”

      The working class pays the taxes of the wealthy. Who paid Sam “WalMart” Walton’s taxes? The people who purchased his products along with stock market investors. And Sam’s compensation package was designed to offset or limit his tax liability. The idea that the top 1% shoulder the nation’s tax burden is silly. The wealthy would not be wealthy without a working class to exploit as consumers or as underpaid employees. Taxes are always passed along in the cost of goods and services, or through reduced wages. Who pays property taxes on rental property? The renter pays with each rental payment. The wealthy just pass along the payment as a middleman. Wyoming’s efforts at income taxation, if that comes to fruition, will undoubtedly harm the working class who will continue to pay everyone else’s taxes.

  3. It sounds like an old story, the story of gentrification. Remember the Scottish Highlands? The poor and independent highlanders were driven out and their lands became the playgrounds for the wealthy and powerful. I am seeing my community converted from working people trying to raise families to retired older folks from high income areas with substantial pensions not common in Wyoming, buying second “escape” homes from upscale realtors. Even though incomes were minimal and financial security was lacking, it gave my son certain values and perspectives not common to young people raised on either coast. Some came with a love for the wild, emersion in wild country, not just as a pretty view. Say farewell to such things.

    1. I am responding to try to get the conversation back to WY’s budget policy / plans. Tax policy can be used to create more social fairness and that is what our elected officials need to examine and implement if necessary

      I want to thank Professor / Rep. Madden and WyoFile for producing these articles.

      They are not the end all for a solution, but do reflect some of the “analysis” needed for producing a fair, appropriate, and efficient tax policy for WYO. From my reading on tax policy, which is primarily about how differnt countries tax their citizens, the major principal that the produces the fairest tax policy is “Broad Based = Low Taxes”. Caveat: Unlike countries as a State, WY needs to produce a “balanced budget”.

      What needs to happen, is our legilature needs to stop “pounding drums”, examine what services the Citizens of WY deem needed from their State and are constitutional; do the data anlysis, and proceed to a solution. Solutions – due not mean they can’t change, they should be reviewed periodically, and adjusted as necessary.

      As Bill Billichek (& I don’t like the Patriots) would say, “DO YOUR JOB!

      Respectfully,
      Jerry,

    2. Bob said: “driven out and their lands became the playgrounds for the wealthy and powerful.”

      The wealthy are aided by land-use policies, tax laws, NIMBY’s, regulations, conservation agencies, and environmental groups that diminish the value of the lives of the working class. Add a desire to import workers and export jobs to the equation and you end up pushing working class native Wyoming residents out of their hometowns.

  4. Virginia Giorgis
    Fort Bridger, Wyoming

    I remember reading an article years ago in which the report was Wyoming has a blue-collar elite due to the mining and oil and gas industries. The article said these people were at the top of the chain, then it dropped to the professional people, then to the degreed people, then to the general population. The people in the general population WOULD LOVE to earn the $65,000 of the median, granted half above and half below. But how many don’t even come close to that number. Talk to them and see their response

  5. Financially Wyoming is an excellent place to live if you are wealthy or a corporation. I believe its time to implement an income tax. It should be bracketed according to income since there are so many low income families struggling. Even 1 percent would go a long way on the low income and ten percent or more on the mega incomes.
    There is a lot of wealthy people moving in to Wyoming due to the no income tax bait. Time to set the hook and capture some economic help.
    Yes I know my city and state says Arizona, I still retain a home and a future in Wyoming. I was born and raised there; clothed and fed and had great teachers because of coal and oil. It saddens me greatly to see the economic stresses due to loss of mineral revenue.

  6. Figures regarding Wyoming’s median household income are skewed by the fact that our richest “One Percent” is among the wealthiest in the nation—mainly the millionaires and billionaires who “live” in Teton, Park, and surrounding counties. As WyoFile has reported in the past, “non-labor income” among Wyoming residents—from investments, retirement, and other means for these folks of sitting back and collecting a check—dwarfs the income that working people earn in the state’s major industries. Any equitable tax policy has to take this aspect of our “excess tax capacity” into account. Much of our “excess” lies among our richest residents, not average working people.

    1. The median (in contrast to the mean) specifically eliminates the bias that ultra high income earners would do in the case of the mean. The median simply identifies the income level for which half the populace is below and half is above that number. The impact of extremes in incomes is eliminated therefore when the median is used.

    2. Nate my good friend, we appear to strongly agree there needs to be new taxes to fund state government. But we appear to disagree on what is equitable. While taxing the rich might be attractive to many, I don’t think it is equitable. Instead, it amounts to income redistribution which is not what taxing should be about. To me equitable means everyone pays proportionate to the services they receive, and rich people don’t necessarily use more government services than other people. There needs to be a serious discussion about what is equitable.

      1. Indeed, Earl. My comments were in reference to the “capacity” that’s out there in the state, and certainly some people have more capacity than others. That said, I think people who have the ability to pay more should. No one gets rich in a vacuum, and dramatically increasing the financial burden on folks who are already struggling is wrong—if someone has a private jet, they can and should pay more than someone making Wyoming’s abysmal minimum wage. What do you think about a flat-rate income tax?

  7. I think there is one more data point that needs including here. The Wyoming median wage, $65,000, includes public and private sector wages. Numbers from 2017 showed private sector wages averaging $42,000 and public sector wages averaging $55,000. Quite a gap! Tax capacity, if utilized, will impact private sector workers far more than public sector workers. And, considering that private sector workers pay far more of their benefit premiums than public sector workers, any tax increase hits them harder.
    Further, consider the smaller population in Wyoming than in the surrounding states. Workers here, public and private, simply cannot reasonably be expected to pick up the slack. Wyoming can no longer afford the largest public sector in the country (per cap).

    1. Wyoming can no longer afford to keep small towns alive, incarcerating people over the use of plants as a medicinal aids and generally making poor and ridiculous laws like say the ITOP report.

      I agree the public sector has to decrease, so I guess you are backing the “defund the police movement” which has been hung around the Dems neck, when it appears that is what needs to happen first or maybe Wyoming could save money by not paving the roads to Etna?

      I just looked and I think we can abandon all the towns from Alpine on 89 to 30 onto I-80 and then all the way to Daniel on 189. I wonder how much money Wyoming could save by abandoning support for the roads and towns along this route? No more small schools, no more inadequate landfills, no inadequate water systems and no inadequate waste water systems?

      Maybe we could calculate where these cities can ever pay their freight? Is this area an important economic or tourist destination?

      I look forward to your ideas on cutting the public sector.

      1. Greg Hunter: “Wyoming can no longer afford to keep small towns alive”

        The United States can’t afford to keep the state alive.

        It depends upon federal handouts.. One of the worst offenders in the state is Teton County which gets hundreds of millions of dollars in federal handouts because residents refuse to pay for the damage done by their tourism economy but are happy to profit from it. Welfare queens run amok across the Red State of Wyoming.

  8. Mike’s thread is thought-provoking. “Ability to pay” a given tax rate, cast as “affordability”, adds to the discussion. But it seems to miss the other side of the tax and spend issue. How much government is worth “affording”, relative to bang for the buck other states deliver?
    How much, per capita, do we generate today from those expenditures and services, state to state? Knowing that might help box the compass. If an outlier like Wyoming’s enormous mineral revenue per capita declines sharply, how much more weight can Giles Corey bear alone?

  9. If we are going to maintain a level of government services necessary to serve our citizens and attract businesses, we are going to have to increase taxes. The Golden Goose (minerals) that has been paying for these services is laying fewer eggs. And as hard as people are looking, they have been unable to find a Sugar Daddy to replace the Golden Goose. Bottom line: we all need to pay more in taxes, and preferably those taxes should be be applied to everyone as equitably as possible. We need to quit looking toward minerals, or corporations, or the rich, or the other guy to pay for government. The answer to the problem must be found in the mirror.