- - Wednesday, April 24, 2019

ANALYSIS/OPINION:

Fortunately, for the hardworking taxpayers of Wyoming, legislators did not approve a proposed new corporate income tax of 7 percent this session. If the tax had passed, Wyoming would have unquestionably become a less competitive state economy for business relocation. 

Furthermore, Wyoming would have lost one of its major economic development selling points, as being one of only two states in the nation without a broad-based business income tax.

Wyoming’s current economic outlook ranking in the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, is eleven, down from eight. It marks Wyoming’s first time outside of the top 10 in the 12-year history of the rankings, which measure the economic future of each state, based on numerous policy factors that influence economic health. 

If the proposed corporate income tax of 7 percent would have been successful this year, Wyoming’s economic outlook ranking would have declined by at least five more ranking slots, to 16.

While Wyoming lawmakers should look for stable revenue sources to ensure core public services are well-funded. If revenue is needed, Wyoming should use its retail sales tax as opposed to any form of discriminatory taxes, such as an income tax. Incentives matter and taxes directly affect where people choose to live, work and invest. All taxes affect incentives, but not all taxes are created equal. The vast majority of research indicates personal and corporate income taxes are among the worst taxes for state growth. Given this fact, it is not surprising that states across America are looking for ways to reduce income taxes. It would be discouraging to see Wyoming move in the opposite direction.

Wyoming is subject to massive swings in state output and income as the prices of oil and coal go from high to low and back again. Unfortunately for energy-rich states like Wyoming, commodity prices have overwhelmed economic policies many times. However, if lawmakers lean on an income tax to increase state tax revenue, the revenue stream will not be able to escape the volatility trap. Just ask former liberal California Governor Jerry Brown, who recently joined in the chorus and admitted Sacramento’s overreliance on income taxes caused some serious budget problems for the Golden State.

A key element for making a good policy decision is missing from the recent corporate tax debate in the Wyoming legislature. The missing element comes from the spending side of the ledger. In years when tax revenues are above average, Wyoming should restrain spending and set aside enough income for a sustained “rainy day.” 

Neighboring Colorado has embraced fiscal responsibility with their Taxpayers’ Bill of Rights (TABOR), an important constitutional measure passed by voters in the 1990s and upheld overwhelmingly by Colorado voters for more than 25 years – despite well-funded and disingenuous attacks from those who wanted to see higher taxes. TABOR keeps government spending within its means during the good times and protects taxpayers from burdensome tax hikes during the bad times. In turn, this taxpayer protection has allowed Colorado to cut tax rates and has fueled economic growth in the state.

Outside of economic growth and diversification, there’s very little Wyoming can do to stabilize the volatile, mining-based economy. But Wyoming lawmakers can reduce the impact of revenue instability without raising any new taxes. It won’t be easy, but some smart choices on both the tax and the spending sides of the ledger will be well worth it. It would be economic malpractice to add revenue volatility to Wyoming’s fiscal system and subtract economic growth from the state with the introduction of an income tax.

• Dan Laursen represents Wyoming House District 25 and also serves on the American Legislative Exchange Council board of directors. Jonathan Williams is chief economist at ALEC and vice president of its Center for State Fiscal Reform. Arthur B. Laffer is chairman of Laffer Associates

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