More Errors by the Revenue Committee

I need to follow up on yesterday's article about the pamphlet "Wyoming's Tax Structure" that the Revenue Committee has distributed to our legislators. I thought I had uncovered the worst perpetration of statistical errors in that article, but I was wrong. There is an even bigger blunder to be reported.

Put lightly: if any legislator votes for higher taxes based on this pamphlet, I will sell him a barrel of snake oil and throw in a bridge in Brooklyn for a dollar.

As a scholar, having worked in public policy since I graduated college more than 30 years ago; having earned a doctorate and built an internationally recognized scholarship; having written policy material for numerous political campaigns, including presidential candidates; having published books with reputable academic publishers and always gone out of my way to do my darn homework; I am very upset at how lightly the members of the Revenue Committee take their work. They are out to raise taxes on one of the worst-performing state economies in the country, and they are doing it with so-called facts that are filled with more gas than the Hindenburg. 

As I explained yesterday, this pamphlet started off with seriously misrepresenting Bureau of Labor Statistics data, to a point where it came across as intentional distortion. 

Today, I am going to continue to examine their purported facts. I know that there are committee members, and supporters of higher taxes int he legislature, who will not take kindly to my criticism. That is their problem: this pamphlet is being used to convince legislators to pass tax increases, and if you are going to raise taxes on the people of Wyoming, you better darn well do it based on solid facts and good analysis. 

Before we dive back into the pamphlet, let me quote a reader who commented on an earlier article about the looming tax hikes:
STOP SPENDING!! Wyoming has the highest number of government workers of any state in the union at over 24%. Nearly one out of every four people in Wyoming either work for the federal, state, or a local government. Again, the highest in nation, number 1 out of 50. Do we really need that many employees? If you can't pay your bills, what is the first thing you do? Go ask your employer for a raise? No, you cut expenses. That is what the people we hired to work for us, like Perkins and Case need to realize. We hired them to work for us just like any other employer, and now they are asking us for a raise. And I'm telling them to cut my expenses.
Well said. Another way to represent the employment number is by the Government Employment Ratio, which I have reported on several times, such as this article back in October.

The consequences of this high-cost government are difficult to hide, but the pamphlet from the Revenue Committee makes a good effort at it. In addition to the major problems I pointed to yesterday, the pamphlet does the classic trick on the sales tax rate. By showing the actual rate on a purchase - represented as 5.46 percent in combined state and average local tax rate - the pamphlet ranks Wyoming as having the 43rd highest sales-tax rate. 

The only problem with reporting the tax rate is that it does not say anything about the actual cost of the tax. For example, the sales tax on a pair of shoes for $20, which is about $1.10, is negligible to a person who makes $75,000 per year but a notable cost to someone making $25,000. Therefore, the correct measure is to compare the cost of a sales tax to personal income by state. 

I have done this myself, but an even better, interactive tool is provided by Key Policy Data. They allow you to compare different taxes and how states rank. For example, when it comes to combined state and local sales taxes, Wyoming ranks 17th, not 43rd. In other words, the actual expense that the sales tax imposes is more than twice as high, relative other states, than the Revenue Committee would have us believe.

Then comes a real home run: the pamphlet moves on to the property tax. Using only the largest city in each state, they find that our property taxes on a $150,000 home is 49th.

This is an astoundingly sloppy piece of information (and I even balk at using that word). First of all, about 15 percent of the Wyoming population live in Cheyenne. In other words, the legislature is supposed to agree to raising property taxes by excluding property tax information from 85 percent of the state.

It is almost as if they spent a month searching for the best way to distort the cost of property taxes.

Secondly, the statistical sample - the largest city in each state - is so uncomparable that the exercise voids whatever results you get of all meaning. Cheyenne is compared to Atlanta, Boston, Chicago, Denver, Seattle, Baltimore, Philadelphia, Oklahoma City, Indianapolis, New York and Los Angeles. 

Third, even if we disregard the selection itself: how many homes in Chicago actually cost $150,000? What is the average size and quality of a $150,000 home in Cheyenne, and what would a comparable home cost in Los Angeles? What is thet tax on that comparable home, in those cities?

Plain and simple: the property-tax data selection is meaningless.

Fourth - and now we get back to Key Policy Data - the real cost of a property tax is the toll it takes on your income. There, we find that Wyoming property taxes are actually the 7th highest in the country!

That is quite different from what the Revenue Committee pamphlet would have us believe. 

Then we get to an item that is perhaps even more error-filled and misrepresented than the one I discussed yesterday. Called, "state and local tax burdens as percentage of income" for 2012. this item suggests that we rank 48th, in other words that only two states have a lower state and local tax burden than we do. 

There are so many problems with this item that I can barely fit it into one article. The most serious problem is that the Revenue Committee is comparing two entirely different things in the numerator and the denominator. This may sound like a small, technical detail, but here is how it works. 

In the denominator they put all income they can get their hands on. Here is how their original source describes it:
The income measure used here adds to personal income the following: capital gains realizations, pension and life insurance distributions, corporate income taxes paid, and taxes on production and imports less subsidies. It subtracts from personal income the nonfungible portion of Medicare and Medicaid, initial contributions to pensions from employers, and imputed personal interest.
Please note the part about "corporate income taxes paid" and the taxes-less-subsidies part. This means that the Revenue Committee takes into account income that corporations make when calculating "income". 

The Tax Foundation, which did the work that the Revenue Committee is citing, then divides income by state, but not according to actual national-accounts data from the Bureau of Economic Analysis (BEA). No, their division is based on an in-house formula that they do not share. This is mysterious, as the BEA publishes both income and full GDP data by state; by using its own, indirect formula the Tax Foundation - and therefore the Revenue Committee - passes something off as "income" in Wyoming that really has no resemblance to income earned in Wyoming.

There is more confusion in the numerator, in other words the taxes paid. The Tax Foundation lumps together taxes paid by both households and corporations, which is fair in and by itself. However, you have to be very careful with how you do that; the Tax Foundation actually admits that they are making some bold and tenuous assumptions along the way. But the biggest problem for the Revenue Committee is that the tax data is based on BEA regional data - ostensibly state data - and therefore follows a different methodology than when they estimate income.

Put bluntly: the state and local tax burden that the Revenue Committee reports compares a real number with a more or less fictitious number.

But the worst part of it is that they report this as a tax burden on households - when in earlier points they have gone out of their way to only look at the tax burden on households. Their reporting method changes to make the point they want. 

Relying, again, on Key Policy Data, the actual state-and-local tax burden is much different than what the Revenue Committee would have us believe. Our state and local taxes are the 8th costliest in the country. Their data compares the taxes that households actually pay, to the personal income they actually earn.

I have reported the cost to be even higher, as I include all taxes, fees and charges that state and local governments rake in from Wyoming taxpayers. I compare these costs to private-sector GDP, which is the broadest possible measurement of the tax base in an economy. In other words, I cover every single revenue sources for every single part of government, and every single dollar made by any taxpayer, that could go toward paying that tax, fee or charge. 

What did I find? We have the second costliest government in the country.

There is even more to say about the pamphlet from the Revenue Committee. The errors I have pointed to are only on the first of six pages. I am, frankly, not in the mood to continue to even read it, so this will have to do. But, again: if this is the best they can do, I would personally be ashamed to vote in favor of any increase in the tax burden on Wyoming families and businesses.

No comments:

Post a Comment

Weekly Economic Review

Our lawmakers here in Cheyenne are planning to raise taxes on the tourism industry - by a lot. In the meantime, the first issue of my new w...