State income tax: The need is clear, even to opponents

It’s taken 20 years, but a small handful of Wyoming legislators are now able to hear suggestions of personal and corporate state income taxes uttered aloud without cowering in a corner or running for the hills.

What happened at the Joint Interim Revenue Committee meeting in Riverton earlier this month is a start, albeit a modest one — members broached the subject in public. But the willingness of the panel to listen to an economist explain how income taxes would stabilize state government’s revenue streams, enable Wyoming to benefit from new industries and lower its overwhelming dependence on the minerals industry, is still only a baby step.

Now let’s see how many lawmakers are ready to take the next steps — considering voting for income taxes, discussing the matter with their fellow legislators and, perhaps most bravely, explaining to voters that such taxes won’t result in economic ruin for their families and businesses. Maybe they can take heart from the example of their predecessors who recognized long ago that for Wyoming to benefit from economic diversification efforts we must reform our state tax structure.

In 1998, the Tax Reform 2000 Committee, comprised of six legislators and five business leaders, began a two-year examination of how state government could establish stable revenue sources amid the latest minerals industry bust. By an 8-3 vote the commission’s top recommendation was to establish both state personal and corporate income taxes.

It was a courageous move, especially considering how controversial introducing income taxes to the state had been for years. I remember a joint interview several Casper Star-Tribune editors and reporters had with University of Wyoming President Terry Roark in 1997. He announced his support for a state income tax as the best way to ensure sufficient, consistent funding for UW and state agencies.

When Roark left the newsroom, we all looked at each other in disbelief and expressed the same thought: Did we just actually hear the head of the university endorse an income tax? How much longer would he keep his job?

Not long, as it turned out. A few months later Roark retired, leaving us to wonder if he felt free to embrace the unpopular position because he knew he was leaving, or if the almost universally negative response to his proposal prompted his retirement.

Tax Reform 2000’s recommendation may have been inspired by Roark, but it landed with a thud elsewhere. Then-Gov. Jim Geringer, who appointed the Tax Reform 2000 members, wiped out two years of work by immediately declaring the recommendation “dead on arrival.”

The report’s advice became moot when the next natural gas boom swept the state, saving the government’s bacon … again. The Tax Reform 2000 report was shelved.

Fast forward to today, when Wyoming is once again trying to climb out of an economic hole left by a minerals bust. Conservative legislators have refused to seriously consider any tax increases at all — even the relatively low so-called “sin taxes” on alcohol and cigarettes.

During last year’s legislative interim the Revenue Department listed options for collecting new revenues but barely mentioned the possibility of an individual or corporate income tax, asserting that neither had any support whatsoever. The Joint Revenue Committee proposed a few other tax bills but they all died swift, ignominious deaths upon reaching the full House. Eight months of work by the committee to identify revenue solutions vaporized.

Rep. Cathy Connolly (D-Laramie), the only committee member to ask how much an income tax would generate, finally received an answer but it was too late to offer a comprehensive bill. Revenue Department officials at the time of Tax Reform 2000 had estimated a modest state income tax would

generate $150 million annually. The 2018 estimate came to $300 million annually.

That would go a long way to close a “structural deficit” state financial experts estimate at about $1 billion. Add $300 million to the revenue from  slightly higher state sales taxes and property taxes, existing mineral severance taxes and divert some income going to permanent savings into education accounts and suddenly the Senate’s insistence that huge cuts must be made to public school budgets no longer adds up.

But wouldn’t a personal income tax drain money from struggling families? The answer, which will surprise most of Wyoming’s residents, is a resounding no.

A 1974 provision of the Wyoming Constitution ensures that people who make up to $50,000 a year would receive a tax credit for their sales, use and property taxes. Their state income tax bill would be zero; the taxes they currently pay would stay the same.

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By constitutional law, revenue from a state income tax would come largely from the richest 1 percent of Wyoming wage-earners. That group of about 2,000 people currently has a median income of $3 million per year and pays an average effective tax rate of only 1.2 percent — the lowest rate in the nation. A state income tax would make them pay their fair share and greatly ease the tax burden of the middle class.

The Tax Reform 2000 Committee concluded, “Higher incomes would pay a greater portion of the tax, but when all households’ pay are considered, each level of income would pay approximately the same level in state taxes.”

A state income tax, then, makes for a more equitable and balanced tax structure. How’s that for a selling point?

The Revenue Committee learned about additional benefits during an excellent presentation by economist Peter Evangelakis of REMI, which contracted with the state to analyze the effects of various tax reform models.

Evangelakis demonstrated how the same hypothetical influx of workers in the chemical manufacturing sector in Utah, North Dakota and Kentucky would impact those states compared to what would happen to Wyoming’s economy. These states all impose personal and corporate income taxes and slightly higher sales taxes than Wyoming does.

The trio had revenues that outpaced their expenditures while Wyoming had the opposite outcome. Because of its current tax structure without an income tax, Evangelakis explained, “Wyoming didn’t capture the increase of economic activity.”

Rep. David Miller (R-Riverton), who is not on the panel but is expected to run for House speaker next year, made an unexpected statement:

“It’s clear as a bell that if you want to diversify the state’s tax base, you need a state income tax.”

Unfortunately, he then added, “I for one do not advocate a state income tax. I enjoy having the minerals industry pay all the bills.” Miller said he believes there are enough minerals not being extracted — such as lithium and rare earth deposits — that with proper development the state could increase severance tax revenues and make a state income tax unnecessary.

Joint Revenue Committee Senate Chairman Ray Peterson (R-Cowley) expressed understandable frustration at the end of the discussion.

“I don’t want to see this become another Tax Reform 2000, where nothing gets done,” he said. “I don’t care if it’s even just a baby step, I don’t care if it’s a lodging tax presentation that we pass, we need to get something done. I think anything we can do to diversify our tax base or revenue stream will be a great thing for this committee to accomplish.”

Aim higher, Mr. Chairman. Miller is dead wrong about “diversifying” by mining the rest of the state, but he’s right as rain when he says it’s clear that we need a state income tax.

Pass it in spite of the odds stacked against an income tax and you will improve Wyoming’s future and get us out of this boom-and-bust cycle that continually stops our economy in its tracks. That would indeed be a major accomplishment.