Under Wyoming’s current tax structure, economic diversification will worsen the state’s fiscal woes, not solve them, an economic study conducted for the Wyoming Legislature’s Joint Revenue Committee found.
Testimony from a Ph.D economist with the economic forecasting firm REMI to the committee yesterday in Riverton painted a striking picture of a tax code that is unable to capture the benefits of diversification beyond the energy industry. The disincentive to grow new industries is so strong, in fact, that economist Peter Evangelakis said Wyoming’s best bet for diversifying the economy without draining the state’s coffers would be to create “highly productive but low-paying jobs.”
High paying jobs, he said, will draw too many people to the state and require government services — roads, public education, law enforcement — that Wyoming won’t be able to pay for. Because of Wyoming’s lack of a corporate or personal income tax, and its relatively low sales tax, the cost of services would outpace new revenues, Evangelakis said.
Mining and energy is the only industry, under the current tax code, where drawing people to Wyoming with well-paying jobs is a net positive for the state, thanks to severance taxes and mineral royalties, the study found. “Only growth in resource sectors has significant positive fiscal impacts,” REMI concluded.
The study comes after a failed effort at tax reform last legislative session. As the 2018 election season heats up most Wyoming candidates avoid any mention of taxes, focusing instead on cuts to government and education budgets. Economic diversification, by contrast, has become a favorite talking-point for politicians. Gov. Matt Mead’s ENDOW initiative and others strive to bring new industries to Wyoming.
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Evangelakis modeled what would happen to state government revenue and expenditures if 100 new jobs were added to four industries: oil and gas, chemical manufacturing, the utility industry and food manufacturing, namely agricultural products.
Costs associated with new workers in every field other than oil and gas would outstrip the tax revenue generated within a few years, the study found. If 100 new jobs had entered the chemical manufacturing industry starting in 2017, for example, expenditures would outstrip revenues by 2022.
If 100 jobs had entered the food manufacturing industry, the tipping point would arrive a few years later. Expenditures wouldn’t outstrip revenues until 2027. The later date would come because jobs in food production aren’t as high paying as the others studied. Lower-paying jobs don’t result in as large of a net population increase, Evangelakis said.
“I do find it fascinating that our best choice for economic development is the one that brings in the least number of people,” said Sen. Cale Case (R-Lander).
“It’s a unique situation,” Evangelakis said.
As a comparison, Evangelakis modeled the same increases of 100 jobs in those four industries to three other states: Utah, North Dakota and Kentucky. All three of those states have corporate and personal income taxes and slightly higher sales taxes. Revenue outstripped expenditures in each instance.
According to REMI’s analysis every economic diversification attempt Wyoming has made or is currently undertaking — from the ENDOW initiative to the Wyoming Business Council’s various grant and loan programs — is a failure pursued at taxpayers’ expense, lawmakers said.
“The culprit is our tax structure,” Senate Revenue Committee Chairman Ray Peterson (R-Cowley) said. “Any project that the state has taken on and subsidized as economic development has been somewhat of a failure.”
It’s not the first time the Joint Revenue Committee has noted the pitfalls of Wyoming’s unbalanced tax structure. Some of the comments from lawmakers echoed the sentiments raised in the run-up to the 2018 legislative session.
Beyond the committee room, however, there is little political appetite for taxes. The focus, particularly in the Wyoming Republican Party, remains instead on reducing the size of government.
ENDOW too has faced resistance from some conservative politicians and party activists in recent months. If ENDOW is going to cost taxpayers money, but voters don’t support a personal or a corporate income tax, lawmakers find themselves in a proverbial “chicken or the egg” situation.
Which comes first — economic diversification or tax reform?
“When you’re in a hole you should stop digging,” Case said. “We shouldn’t be doing these kinds of subsidy projects until we get a different tax structure.”
Read the study below:
While the study is good as far as the description here goes, one point needs to be front and center. The discussion is confined to what is good for government, not what is good for people. People in Wyoming benefit greatly from an expanded, diverse, and more vibrant economy. It is only government services that suffer, and that is absolutely because the legislature refuses to improve the tax structure. The codependency between ,legislators and those in extraction industries is the problem. They serve each other and not the people and it benefits those who lead in the legislature and those who lead Extraction industries, who are sometimes the same individuals. People in Wyoming say they hate taxes, but only by paying for government can we force it to work for us. As long as extraction industries own the state, we will continue as a mineral colony instead of as a real independent state.
The hardwood orthodox Wyoming Republican will certainly perish at some point in the not too distant future, by choosing to fall on his/her own swords of No New Taxes and Cut The Size of Government. The reality is Wyoming is no different than any other state in needing a minimum threshhold of government services and functionality, and I do believe the Red-robed cardinals at the State legislature have pretty much cut down the size of government in Wyoming ( education being a wild card ). BUT they have done nothing to adjust for new revenue given the spectre of the dinosaurs of Fossil Fuels dying at their feet. Falling demand for coal and low wholesale prices for crude and the glut of natural gas depressing prices just have not burned thru to the Republican leadership in Cheyenne , executive and legislative. Tax Reform is absolutely necessary —sooner, not later. So please Mr. Solon, quit kicking that empty 55 gallon oil barrel down the road. Fall on your own sword if you so choose, but the people of Wyoming are sharpening theirs and will take them in behind the voter curtain at some point. The Wyoming GOP needs to start looking out for our states best interests instead of clinging to their old tired rigid Reagan Republican ideology. The Bottom Line: Reform , or Retire.
Wyoming is an acquired taste. It’s not for everybody.
Thanks for a great article. Mr. Evangelakis model is supported by data from Lincoln county. According to the BOSV 2017 economic analysis the “Star Valley population as of year-end 2016 was approximately 13,400 – or 70% of the total population of Lincoln County.” According to the Lincoln county Assessor website the top 10 taxpayers of Lincoln County are all in of southern Lincoln County. Our current tax model depends on minerals, and areas with lots of minerals pay a lot. Our current spending model (Campbell County decisions) moves money to populated areas which may not have minerals. A possible solution is giving local municipalities more tax authority so revenue comes from where it is spent. Re-exploring the Campbell County decisions (constitutional amendment) may be needed as part of the solution.
Is this a “Paul Reverel warning to the Wyoming Legislature?? Or will we continue to build Mushroom Factories in Shoshoni and gun magazine factories in Cheyenne where workers continue to commute from Colorado so they are eligible for Medicaid in Colorado while working low-wage jobs in Cheyenne??
It is reassuring to me, having served in the past with Senator Ray Peterson on Appropriations Committee , that he seems to understand, and hopefully will work for revisions to our taxing structure. Senator Case’s comment also potentially reassuring.
Thanks, WyoFile, for the great article, and thanks, Revenue Committee, for the great discussion. Senator Case’s quote at the end definitely sums things up. Time for all Wyomingites to have an open conversation about our economic future.