Systemic Budget Reform, Part 2: HB126

Last Friday I published an analysis of HB172, which calls for a modest reform to state spending. The idea is to stabilize state spending over a business cycle to avoid the kind of runaway spending binges that tend to come with windfall gains or cyclical surges in revenue. I concluded:
The ambition here is good: never spend more money than you have in current revenue. This formulation would put an end to the destructive practice that our legislature has fallen into, where it simply keeps appropriating money when it has run out of tax revenue, backfilling it with whatever our state's large investment portfolio can provide. 
However limited this bill is in its scope on spending reform, it is more important than the other bill that is trying to take a systemic approach to state finances, namely HB126. This bill wants to create a "revenue recalibration task force", with the purpose of analyzing "the current state and local revenue system".

There is nothing inherently wrong with the idea behind this bill, but as we will see in a moment it is not very clearly focused. However, there is a more important problem, namely the timing of the bill itself. A reform to our state's tax system today would calibrate it to meet current spending levels, which are higher than the Wyoming economy can provide for. Therefore, the proper order in which systemic budget reforms should happen is:

  • First, we get major structural reforms to K-12 education (why is school choice so difficult to grasp?); health care including vouchers for Medicaid; and transportation including turning I-80 into a self-funding toll road;
  • Then, once spending is on a trajectory to a permanently lower level, we redesign our tax system to fund that permanently lower level.

Since we are not going to get the structural spending reforms this session, the least our legislators can do for us is to pass HB172. With all its flaws and limitations, at least it does something on a comprehensive level to put a fiscal leash on our state government.

When it comes to HB126 and the "revenue recalibration task force", as mentioned its focus is not very good. In fact, as designed it may even be a waste of valuable time - and appropriations. Let us walk through the bill step by step and see what it wants the tax force to study.
The composition, dependability and flexibility of Wyoming's current tax system and its adequacy to meet the state's long-term needs;
Those needs are not defined in this bill. Is it up to the task force to define those goals, or does the bill take for granted that our government is doing what it is supposed to do? The latter seems to be the case, which means that if the legislature passes this bill, it also makes an implicit statement that it has no intentions of reducing the size of government here in Wyoming. 

The flip side to that coin is that the legislature would lock in current spending in the other direction as well, excluding such disastrous ventures as Medicaid Expansion. It might be good, though, if the legislature amended this bill with a clear and concise statement that the "long-term needs" of the state - meaning the state government - are not to include any expansion of government functions beyond where they are today. While this would not open for any reductions in spending, at least it would prevent a scenario where the tax force comes up with spending for, again, Medicaid Expansion or even crazier ideas like paid family leave or universal child care imported from Calirado

Back to HB126 and the assignment list for the tax recalibration task force:
The relative burden imposed by the current tax system and the relative equity of that burden; The relationship between the current tax burden and the benefits received by taxpayers and citizens to this state;
Here the legislature will be asking the tax force to take into account the false notion that Wyoming households do not pay for the government services they receive. In other words, if this task force is actually appointed, expect it to come up with new ways to tax families - and do not be surprised if corporate and personal income taxes are on their list of suggestions. 
The relationship between the current tax system and the overall revenue needs of state and local governments in this state;
Again, if the legislature passes this bill, it will make a statement that it takes government spending as a given. However, this particular item also indicates that they will try to make taxes look as the only revenue source for government. In fact, fees, charges and other revenue actually account for about half of all government revenue in our state. 
The impact of the state and local tax system on economic development;
When you read this item superficially, it sounds like the authors of the bill want the tax force to consider how taxes affect the economy as a whole - in other words, the private sector that produces the tax base on which government lives. Upon closer look, however, the use of the term "economic development" suggests that the task force will be asked to consider who ENDOW and other corporate-welfare programs interact with taxation. 

This is a peculiar question to ask - unless, of course, the authors of the bill want exemptions written in to a new tax code for businesses that receive corporate welfare. Such exemptions would be meaningful primarily if we had a corporate income tax. (Ahem.)
The simplicity of the tax system both in terms of government administration and taxpayer compliance; and The availability of current savings to meet state and local revenue needs.
These two items are nice, of course, to add to the picture. I would not put too much emphasis on them; they will be subordinated to other items. The tax system that this task force would recommend is going to be whatever it thinks is necessary to guarantee the revenue that government wants. If that means complicating the system from the viewpoints of administration and compliance, then so be it. 

Again, HB126 comes at the wrong time. It would make a lot more sense if the legislature passed comprehensive spending reforms first, and then returned to the question about our tax system once those reforms had gone into effect.

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