Recently in Wyoming Category

The Center on Budget and Policy Priorities recently released a very useful report summarizing tax expenditure reporting practices in the states, as well as methods for improving a typical state's tax expenditure report. For those unfamiliar with the term, a "tax expenditure" is essentially a special tax break designed to encourage a particular activity or reward a particular group of taxpayers. Although tax expenditures can in some cases be an effective means of accomplishing worthwhile goals, they are also frequently enacted only to satisfy a particular political constituency, or to allow policymakers to "take action" on an issue while simultaneously being able to reap the political benefits associated with cutting taxes.

Tax expenditure reports are the primary means by which states (and the federal government) keep track of these provisions. Unfortunately, most if not all of these reports are plagued by a variety of inadequacies, such as failing to consider entire groups of tax expenditures, or not providing frequent and accurate revenue estimates for these often costly provisions. Shockingly, the CBPP found that nine states publish no tax expenditure report at all. Those nine states Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, South Dakota, and Wyoming, undoubtedly have the most work to do on this issue. All states, however, have substantial room for improvement in their tax expenditure reporting practices.

For a brief overview of tax expenditure reports and the tax expenditure concept more generally, check out this ITEP Policy Brief.

Earlier this week, the Institute on Taxation and Economic Policy (ITEP) released a brief report using IRS data and revealing that the most unequal states in the country also happen to be states that lack the type of progressive tax provisions that could reduce this inequality and raise badly needed revenue. The most unequal states either don't have a personal income tax or have one in need of improvement. Consequently, these states are left with tax systems that, on the whole, are unsustainable, inadequate, and unfair over the long-run.

The IRS data show that, in 2006, ten states -- Wyoming, New York, Nevada, Connecticut, Florida, the District of Columbia, California, Massachusetts, Texas, and Illinois -- have greater concentrations of reported income among their very wealthiest residents than the country as a whole. Yet, the tax systems in these states generally ignore that very important reality. Of those ten states, four lack a broad-based personal income tax and three either impose a single, flat rate personal income tax or have a rate structure that all but functions in that manner. Three do use a graduated rate structure, but of these, two have cut income taxes for their most affluent residents substantially over the past two decades.

Given this mismatch, it should not be too surprising that over half of these states face severe or chronic budget shortfalls. After all, the lack of an income tax, the lack of a graduated rate structure, or moves to make the income tax less progressive all mean that a state's revenue system will not completely reflect the concentration of income among the very wealthy and therefore will not yield as much revenue.

Case in point: New York. As the Fiscal Policy Institute observes, over the last 30 years, the state has reduced its top income tax rate by more than 50 percent. Most recently, in 2005, it allowed to lapse a temporary top rate of 7 percent on taxpayers with incomes above $500,000 per year. Today, the state must confront a budget deficit of more than $6 billion for the coming year and more than $20 billion over the next three. New York residents seem to understand the disconnect between the enormous disparities of wealth in their state -- where the richest 1 percent of taxpayers account for 28.7 percent of reported income -- and the state's fiscal woes. A poll released this week shows that nearly 4 out of 5 people surveyed support increasing the state's income tax for millionaires. Hopefully, Governor David Paterson is listening. As it stands, he'd rather cap property taxes than ensure that millionaires pay taxes in accordance with their inordinate share of New York's economic resources.

States' collective fiscal outlook appears to be quite dim and could get even darker in the months ahead according to a report released this week by the National Conference of State Legislators (NCSL). The report notes that, in the aggregate, states experienced a $40 billion budget gap for fiscal year 2009, a chasm that has been bridged largely through reductions in spending.

Not every state's budget is shrouded in gloom, however. Some states derive significant revenue from severance taxes (taxes imposed on the extraction of natural resources like oil and natural gas) and have economies closely tied to these industries. These states, Louisiana, North Dakota, and Wyoming for example, are enjoying substantial budget surpluses.

Given the volatility of energy markets, these surpluses are likely a temporary phenomenon, but that hasn't stopped states from considering and enacting tax cuts that would permanently reduce revenue. Earlier this year, Louisiana briefly weighed the idea of repealing its income tax altogether, only to settle on an oh-so-modest annual cut of $300 million. North Dakota has not only revived its property tax debate from a few years ago, but may also place on this November's ballot a measure that would slash the personal income tax by 50 percent and the corporate income tax by 15 percent. In this context, a plan backed by West Virginia Republicans to completely exempt groceries from the state sales tax appears far more reasonable in scope - and would certainly help to improve the progressivity of the state's tax system. However, it would still likely leave the Mountain State with inadequate revenues once oil and gas prices come back to earth.

Perhaps the most responsible - and fair - approach to surpluses generated by skyrocketing severance tax revenue comes from New Mexico, where Governor Bill Richardson this past week put forward a proposal to dedicate the majority of the state's projected $400 million surplus to one-time tax rebates and to highway construction. Richardson's proposal does contain some permanent changes in tax law, such as an expansion of the state's working families tax credit, but they appear to be targeted towards those low- and moderate-income taxpayers who are facing the greatest challenges from the nationwide foreclosure crisis and from rising fuel and food prices.

Wyoming Governor Dave Freudenthal recently proposed a constitutional amendment for his state as well, offering a plan to cut property taxes for the elderly. An amendment is necessary as Wyoming's constitution requires that all property be assigned its full value for tax purposes in one of three classes - mineral, industrial, and personal. More specifically, the Governor's plan would exempt one half of the fair market value of an elderly taxpayer's residence from taxation, up to $100,000, resulting in an average tax cut of $638 for senior property owners and in an annual revenue loss of $15 to $18 million.

Given that Wyoming already has two means-tested property tax relief programs - one targeted to the elderly and another for all taxpayers - and a third not presently funded by the legislature, one could legitimately ask whether the goal of alleviating property taxes for those least able to pay them would be best accomplished through the Governor's amendment. Reed Eckhart of the Wyoming Tribune-Eagle poses that question and others in his recent column, arguing for all Wyomingites to contribute to public structures like schools and roads.

With Halloween and Thanksgiving just around the corner, it's no surprise that state lawmakers are in the holiday spirit. But Wyoming policymakers may have taken the holiday mood one step too far with a property tax holiday proposal. Governor Freudenthal is proposing a one year property tax holiday that would reduce property tax rates by 12 mils. Apparently the state doesn't need to generate property tax revenue next year because surpluses are expected. This proposal leaves low- and middle-income taxpayers with little to celebrate because the tax cuts aren't targeted to those with the least ability to pay. A better policy alternative would be to expand the state's current property tax relief programs.

Wyoming community colleges are funded primarily by county property taxes. Right now, the seven counties containing community colleges levy a special property tax for this purpose, but most other Wyoming counties don't... even though these other counties benefit from the services the community colleges provide. An interim legislative committee is exploring a statewide property tax as an alternative to this inequitable state of affairs. The committee has identified an important tax fairness problem that residents of most major cities are all too aware of: when local governments provide services that benefit a broader geographical area, how can they ensure that other localities pay their fair share of the cost for these services? A statewide property tax seems like a good place to start.

Earlier this spring, Wyoming became the latest state to exempt groceries from its sales tax.

Now businesses are discovering that special sales tax exemptions can be harder to implement than they are to enact. As one local entrepreneur notes, "If the tax exemption is meant for food that's not immediately consumed will his employees need to treat the customer who buys a bagel to eat in the store differently from the customer who takes his bagel elsewhere to eat?" Sales tax exemptions are a progressive (but costly) approach to sales tax relief. ITEP has more on options for progressive sales tax reform here.