You Want to Raise Taxes on This Economy?

The Bureau of Economic Analysis has released the state GDP growth numbers for the second quarter. 

That is the good news.

The bad news is in the numbers. The annual growth rate for the Wyoming economy was a pathetic 0.18 percent. Compare this to the U.S. economy, which grew at 2.87 percent.* If we isolate the private sector, the discrepancy was less embarrassing: 0.87 percent vs. 2.99 percent. That is still a major difference, with the national private-sector growth rate being 3.4 times higher than in our state's economy.

We did not fare much better compared to our neighbor states. We lost out to all of them in terms of GDP, and to all except Nebraska for the private sector:

Table 1: Real annual growth, Q2 2018

GDP Private
Colorado 3.46% 3.74%
Idaho 3.45% 4.24%
Montana 2.06% 2.54%
Nebraska 0.27% 0.54%
South Dakota 0.76% 0.96%
Utah 4.80% 5.22%
Wyoming 0.18% 0.87%

This slow growth is not a new phenomenon. Figures 1a and 1b compare growth in Wyoming GDP and the private sector, respectively, to the same variables for the U.S. as a whole. First, GDP:

Figure 1a
Source: Bureau of Economic Analysis

The same pattern is clearly visible in private-sector growth, or, in terms of Wyoming, lack thereof:

Figure 1b
SourceBureau of Economic Analysis

If we stretch out our horizon even further, to the bottom of the Great Recession almost nine years ago, our growth record is even more depressing. Figure 2 compares us to our neighboring states; suppose that on December 31, 2009, you deposited $100 into seven different bank accounts, one for each of our neighboring states, and one for Wyoming. The interest rate would then follow exactly the annual private-sector growth rate, reported quarterly, in each state:

Figure 2
SourceBureau of Economic Analysis

As of the second quarter this year, the $100 would have become:

$290.45 in Utah,
$270.71 in Colorado,
$229.04 in Idaho,
$206.66 in Nebraska,
$187.47 in South Dakota, and
$181.79 in Montana.

But what about Wyoming? Well, if the $100 had neither grown nor shrunk, it would have followed the dashed line in Figure 2. But it did not follow the dashed line. The $100 in the Wyoming account shrunk to $88.86.

This means, in practical terms, that while every one of our neighbor states have experienced more or less good private-sector growth, our state's private sector is smaller today than it was at the very bottom of the Great Recession. Which leads to the uncomfortable conclusion for our legislators and Governor-elect Mark Gordon:

Our state's tax base is smaller today than it was at the bottom of the worst economic recession in almost a century.

For all of you out there who still think it is a good idea to raise taxes:

How big would the difference have been between us and our neighbor states, if we had raised taxes already in 2010?
*) This figure is the annual growth rate. It is not to be confused with annualized growth. Some media pundits prefer to use the latter, which is then often compared to annual growth without anyone realizing the error. Back in September, I explained the difference and its consequences over at Larson's Political Economy.

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