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.
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: