The state legislature’s budget and fiscal staff recently prepared a very novel one-page document that merits the attention of every Wyoming lawmaker and citizen.

“Wyoming Estimated Tax Capacity” answers a seemingly simple question: How much additional revenue could Wyoming raise if its tax rates equaled, on average, those of adjoining states?

Calculating an answer required an extensive review of tax policies in neighboring states and an equally rigorous comparison with Wyoming’s. Sales and use taxes, property taxes and income taxes were all taken into account.

Not surprisingly, Wyoming currently has the lowest rates in each tax category among the states considered — Montana, North Dakota, South Dakota, Nebraska, Colorado, Utah and Idaho. This means that we have “excess tax capacity” among all of these types of taxes.

To figure this out, investigators determined the tax rate for each type of tax in each of the comparison states, put them all together, found the median and compared that median to Wyoming’s current rate.

The rate difference is what the analysis defines as tax capacity. It then calculates how much revenue is associated with this excess tax capacity. In fiscal year 2023, added sales and use tax revenue would amount to $245 million for state and local taxing entities or about $169 million per year for the state alone.

To be clear, all of that additional government funding would come just from bringing the sales and use tax rate up to the regional median. The types of transactions to which such taxes apply is not accounted for in that figure.

Wyoming’s sales and use taxes are applied very narrowly thanks to a long list of exemptions. Wyoming statutes currently shield numerous commodity sales, purchases of manufacturing and large data storage facility equipment, and most services from taxation. Over the last 50 or so years, consumer habits have changed such that now, 60% of purchases consist of services and about 40% are goods. Four decades ago, these percentages were reversed. This means that the sales tax base, as applied to commodities, has significantly eroded.

The added revenue that would accrue to the state if the tax statutes mirrored the range of services taxed in South Dakota would equal $262 million compared to the $169 million without broadening.

The authors of the document performed a similar analysis for property taxes and found that on average, the Wyoming residential property tax rate is .68% of fair market value, while the regional median is about .95%. If Wyoming’s residential sales taxes were at the median of neighboring states, that would produce an estimated $178 million in additional revenue in FY 2023.

Parallel calculations of tax capacity associated with commercial and industrial property were also included in the analysis. Together, the added tax capacity of the property taxes from residential, commercial and industrial classes would add up to $378 million per year — more than is needed to close the structural deficit in the education foundation program.

As for income taxes, the median highest-bracket tax rate among comparison states is 4.95%. Since Wyoming presently has no income taxes the comparison is pretty easy. Every dollar generated by a tax at the median rate counts as fresh capacity.

Under House Bill 147 – a failed Wyoming income tax act from last session that was reconsidered by the Joint Revenue Committee in November — the added tax revenue calculates to about $150 million per year for the individual income tax. This bill limited the individual income tax to income above $200,000, meaning the vast majority of Wyoming earners would pay zero income tax. An additional $14 million would be generated if a corporate income tax was considered.

All told, the analysis produced in this document holds two important findings. First, if Wyoming captured the tax capacities identified above, the added revenue would more than eliminate the state’s structural fiscal deficit. In fact, the total increase in revenue generated would add up to over $1.6 billion per biennium.

Second, by raising some of these potential revenues while also making some of the cuts proposed by Gov. Mark Gordon, Wyoming could both balance its fiscal affairs and maintain its regional status as the state with the lowest taxes.

Michael Madden served 12 years in the Wyoming House, including seven as chair of the Revenue Committee. An economist, he holds a doctorate in economics from Iowa State University. The views expressed here are solely his own.

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 in economics from Iowa State University. The views expressed here are solely his own.

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(1) comment

David Siminoff

Question: Does this tax analysis presume a vertical demand curve? That is, taxes could be raised and there would be zero "movement to Florida, Texas, or other low/no tax states"? Whenever I read these analyses, I get the sense that the authors presume no affect on behavior which seems... well, wrong.

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