If you have to ask who’s paying, you are.
As Congress pushes through its tax reform bill, cutting $1.5 trillion in tax revenue from the federal budget and subsequently slashing departmental funds, the states have been left to their own devices for maintaining critical service levels.
Gov. Matt Mead’s recommended budget, presented to the Wyoming Legislature on Monday, requested increased funding for several departments to fill that gap.
“It’s not an optional thing for the state,” Mead told the News&Guide. “There are mandatory requirements the state has to do to comply with federal law, and as the feds reduce some of the money they give to states it requires the state to pick up some of the balance. Certainly some of the recommendations I have are to adjust for changes in how the feds do business.”
While the state has increased its revenues in the last year, thanks in large part to a rise in oil and natural gas prices, it continues to struggle financially and is looking at adding various state taxes to offset funding shortages. That can most clearly be seen in the budgets of the Department of Health and the Department of Family Services.
To offset $1.8 trillion in cuts to Medicare and Medicaid over the next 10 years, the governor wants an additional $1.5 million in state funding for premium increases in the Children’s Health Insurance Program also known as CHIP (see related story on page 1).
He also recommends $6.7 million to counteract increased pharmacy “clawbacks” from the federal government, which increase co-payments for prescribed drugs, $8.67 million for Medicare buy-in, $11 million to cover increased enrollment in nursing homes, and $6 million for Title 25 funding, which pays for emergency detentions and involuntary hospitalization costs.
For the Department of Family Services the governor recommended an additional $10 million for local services to avoid a budget shortfall.
While both the U.S. House and Senate eventually agreed to increase the child tax credit, the governor also recommended an additional $2 million for the Child Care Unit.
“Child Care Assistance benefits low-income parents in Wyoming helping to pay for child care costs,” Mead wrote in his budget letter. “Without these funds, the Department of Family Services would need to implement immediate reductions to childcare assistance.”
The Supplemental Nutrition Assistance Program, often referred to as SNAP or food stamps, is expected to be cut by $193 billion over the next 10 years, and Supplemental Security Income, which provides financial assistance to disabled Americans, is expected to be cut by $20 billion.
The idea behind the federal cuts is that tax reform will drive widespread economic growth, increasing competition, which will lead to a rise in working-class wages while, at the same time, reducing their obligations to the federal government and ultimately their need for social services or subsidized health care.
“This important pro-growth tax reform bill will put money back in the pockets of middle-class families and make our country globally competitive,” said Sen. Mike Enzi, chair of the Senate Finance Committee.
“This legislation is truly about making a better future for our country,” Enzi said. “It is rooted in the ideal that Americans, not the federal government, know best how to spend their hard-earned money.”
Dr. Sherrill Shaffer, the Guthrie distinguished professor of banking and financial services at the University of Wyoming, is more optimistic than many other economists around the county about actualizing these prospects.
But, he said, it is all conjecture at this point, and making such bold cuts is a clear risk.
“We’re now in the initial stage of the next experiment with taxes,” he said. “The direct loss of revenue could be offset by additional growth, but I’m not sure about that.
“I will say, back in the ’80s when Reaganomics was implemented, there was an argument about trickle-down economics, and I was skeptical of how effective that would prove to be,” he said. “But in fact, once we got out of the recession the economy seemed to function better than I had thought.”
A possible elimination of the state tax deduction could give people and businesses an incentive to move to a tax-friendly place like Wyoming, Shaffer said. But any gains, he said, would likely be reduced by a deduction for property taxes.
Furthermore, conventional wisdom holds that economic policy takes about five years to take hold. With many of the tax cuts for the middle class set to expire in 10 years, so as to not add to deficit past 10 years, allowing Congress to pass the bill with a simple majority, the positive effects for Wyoming could be drastically reduced.
The key provision for Wyoming, Shaffer said, is dropping the corporate tax rate from 35 to 20 percent. With already low taxes and Mead’s ENDOW initiative to diversify the state’s economy, which the governor recommended the Legislature appropriate $37.5 million for over the next two years, tax reform could be a boon to Wyoming’s economy in the long run.
In the short term, however, the tax bill’s provision to allow drilling in the Arctic National Wildlife Refuge would likely reduce the price of oil, diminishing the recent gain in Wyoming’s extraction industries.
“Allowing drilling in ANWR should bring down oil and gas prices, which is going to hurt Wyoming’s economy overall and particularly the state budget situation here,” Shaffer said.
“I would foresee a negative short term, but because of the diversification incentive long term it should be a benefit for Wyoming,” he said.