I first published this article with the Wyoming Liberty Group.
Well, the cat is finally out of the bag: with HB220, the legislature is presented with all the legal and economic architecture needed to put a corporate income tax to work. By extension, it also opens for a personal income tax. Approved on January 23 by the House Revenue Committee on an 8-to-1 vote, this bill imposes an seven-percent income tax on a select few industries. It narrows the tax to businesses in retail and in food and accommodation services, provided they have at least 100 shareholders.
With all these caveats in place, it does not seem like this is much of a tax to worry about, right? In fact, the fiscal note says it will only collect $45 million per year.
Unfortunately, this bill is indeed something to worry about. The big story about HB220 is not the industries it applies to, but the structure it puts in place. Its real purpose is to change the statute that, as of today, prohibits the collection of an income tax.
Bluntly speaking: if HB220 becomes law, the road is paved for our state government to widen, broaden, increase and expand the corporate income tax. All that is needed is for the legislature to add new industries to the list of those to which the tax applies. It can also, with ease, lower the threshold to smaller businesses.
In other words, this is the big leap across the creek. Once we are on the other side, it will be a smooth walk into the shadowland of a widely applied corporate income tax.
But not even that is the whole story. The corporate income tax could very well be seen as a preamble to the big story: a personal income tax. While it is already on file for this session in the form of HB233, the personal income tax is unlikely to go anywhere.
This session, at least. Let us all keep in mind how unlikely it seemed, only a couple of years ago, that Wyoming would adopt a corporate income tax. Now we have a bill that so far is moving smoothly through the legislature; once that tax is in place, is it really inconceivable that it will be supplemented by a personal income tax at some point?
A full-fledged income tax, personal and corporate, would undoubtedly be harmful to the Wyoming economy. We only need to imagine what a seven-percent corporate tax would do (the rate that, again, is proposed in HB220). Our tax would be higher than in Colorado (4.63 percent), Montana (6.75) and Utah (5.0). It would exceed the 4.31-percent tax rate in North Dakota, whose tax HB220 appears to be modeled after, and it would only be marginally lower than the 7.81-percent corporate income tax in Nebraska.
Our corporate income tax would be higher than in 23 of the 44 states that currently collect such a tax.
It is important to put this fact in a broader context. For example, over the past ten years we have had the worst private-sector jobs creation of all the states. Furthermore, the total cost of our state and local government is the second highest in the country. And that is before HB220 even becomes law.
The absence of an income tax is one of the few attractive features of the Wyoming economy. Our state cannot afford to make life costlier and more complicated for any business, large or small. Instead, we need to move toward spending reforms, a move that must begin with transparency in all of government, and systematic reduction of government waste.