Sloppy Errors by the Revenue Committee

The Revenue Committee just published a brochure called "Wyoming's Tax Structure: An overview of the state's revenue and how it compares to neighboring states". This report, sent out to all legislators, is supposed to present the case for higher taxes. (You can probably obtain this report by contacting your representative or senator.)

Given the serious damage that the Wyoming economy would suffer from higher taxes, it is very important that the debate over tax hikes is conducted based on facts and solid analysis. Furthermore, it is even more important that every tee is crossed and every i is dotted, even before the analysis begins.

For this reason, I have to call out the Revenue Committee on a couple of errors and omissions that call into question the veracity of the entire pamphlet.

The Committee starts off by declaring that Wyoming has the second lowest estimated tax burden on a $50,000/year household income (as of 2016). They rank Wyoming 50th, out of 51 jurisdictions (including the D.C.), claiming that the data applies across states.

The only problem is that - it doesn't. The study that the Revenue Committee refers to as its source does not at all compare state tax burdens. It compares a select number of cities, one per state. In other words, the Revenue Committee claims to be comparing states, when in reality they are comparing Cheyenne - and no other part of Wyoming - to cities like Denver, Jacksonville, Atlanta, Chicago, the District of Columbia, Boston, Detroit, Baltimore, New York City...

In elementary statistics classes, they teach you not to do this. Why? Because the first rule in statistics is to compare apples to apples. It is valid to compare states because states are independent jurisdictions of comparable legislative and constitutional status. Cities have almost none of those properties.

Since the Revenue Committee wants the state - yes, the state - of Wyoming to change its tax laws based on this report, it ought to provide its legislators with information based on state data, in other words the very jurisdiction that those legislators are elected to govern. To use city data and pass it off as state data is to be sloppy, if not deceptive. 

But the problems for the Revenue Committee do not stop there. After having passed city data off as state data, they make another serious statistical error. The tax burden in the cities they compare is related to a $50,000/year household income. However, the problem is that household income varies dramatically between states - even the cities that the Committee uses in its pamphlet. Bluntly: how many households in Cheyenne actually make $50,000 per year? How many households in New York City make $50,000 per year?

If we elevate this question to the state level: how many households in Wyoming make $50,000 per year?

By selecting a fixed income to compare, the Revenue Committee makes the tax burden look lighter than it actually is. The income they use as denominator is much more common in New Jersey and Connecticut than it is in Wyoming. 

The correct approach, of course, would have been to compare the tax burden to the median or the average household income in each state (not city). The point is, namely, that you want to show as accurately as you can how taxes affect as many as possible of the state's households, families, income earners - whatever denominator you choose. But the denominator has to be relevant, i.e., apply to as many as possible in the state (not city).

It is worth noting that if the Revenue Committee had chosen another table in their source, namely the table right before the one they used, Cheyenne - again, not Wyoming - would have been ranked much more unfavorably. This is the table using a $25,000/year income household as denominator. The tax burden on that family is 61 percent higher than for the $50,000/year family. This is significant: here in Wyoming, the average, private-sector job outside of minerals pays an average of just over $37,000 per year. Since minerals only account for ten percent of all private-sector jobs, this is a significant little factoid. The tax burden on the average household in our state is higher than what the Revenue Committee suggests. Their selection of income for their comparison distorts the fact about our tax burden.

But their problems are not over. There is more. A closer look at what taxes they include in their assessment of the tax burden on that $50,000/year household shows that they have been highly selective: only sales, property and income taxes, and taxes on motor vehicles, are included. Here, the Committee runs into two problems.

First, it does not include fees and other charges that households pay. The narrow focus on taxes distorts the burden that government imposes on households; as I explained recently, taxes only account for just over half of all government revenue here in Wyoming. This does not mean that the average household pays almost as much in fees and other charges as they pay in taxes, but it means that by omitting those costs of government, the Committee makes government looks considerably cheaper than it actually is. 

Secondly - and this is even more serious - the raw data that the Committee relies on does not even lend itself to the kind of interstate comparisons that the Committee claims it can be used for. For example, the origin of the sales-tax data, which is the Bureau of Labor Statistics consumer expenditure data, is not produced in a format that permits state-to-state comparisons, especially not of the kind the Revenue Committee purports to be doing. 

There are many more sloppy parts of their brochure that I will address in coming blog articles. For now, here is a list of my own recent articles on the burden of government - articles based on data that actually lends itself to interstate comparisons:

Again, you can probably get a copy of the report "Wyoming's Tax Structure: An overview of the state's revenue and how it compares to neighboring states" by contacting your senator or your representative. This is, after all, a document that they will rely on when they decide whether or not to raise your taxes. 

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