CHEYENNE, Wyo. — Wyoming again ranks fourth among states for best economic growth and outlook, largely because of the state’s low total tax burden, according to a nonprofit group’s report.
The American Legislative Exchange Council (ALEC) ranked Wyoming fourth for the second consecutive year in its “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.”
The fifth annual report was authored by economist Arthur B. Laffer and The Wall Street Journal senior economics writer Stephen Moore, among others.
The report based the ratings on income, population, job growth, various tax rates, regulatory burdens and labor policies.
Wyoming scored points for having no personal income tax and for having passed anti-union, right-to-work laws, among other criteria.
Utah ranked No. 1 followed by South Dakota and Virginia. New York was again in last place.
“Rich States, Poor States demonstrates that tax-and-spend policies have weakened economies in the states,” ALEC Public Sector State Chairman and state Rep. Pete Illoway said in a media release. “In Wyoming, we know that a competitive tax policy encourages businesses to create jobs, innovate and invest in our great state.”
ALEC’s mission is to promote free markets, individual liberty and federalism through its model legislation in the states.
“It’s a good-news story, and it’s nice to have some good news as we continue to look at declining natural gas prices and some of the difficult choices that we’ll have ahead,” Gov. Matt Mead said during his weekly media conference on Wednesday. On Monday, Mead directed virtually all state agencies to prepare for 8 percent budget cuts starting July 1, 2013 and to cap state worker positions.
Data from the latest U.S. Census reveals a clear link between high state taxes and slower economic growth, the report said.
Other reports say a state with no personal income tax, such as Wyoming, has a regressive tax system.
A regressive tax is one that imposes more of a burden proportionately on low-income people. Sales taxes are considered to be regressive taxes.
Wenlin Liu, senior economist with the state’s Economic Analysis Division, said Wyoming is saved from having a regressive tax system because the state exempts groceries from its sales tax.
“At least Wyoming has the food exemption,” Liu said.
Wyoming also has one of the lowest household tax burdens in the nation because of the absence of a personal income tax and because of substantial revenue from mineral production.
About two-thirds of Wyoming’s tax income comes from mineral severance and property taxes and from federal mineral royalties, Liu said.
Those sources also provide about half of the income for the state’s local governments.
Although nationally the economy is transforming from a manufacturing to a service economy, the tax system is unchanged, Liu said. Wyoming and many other states offer dozens of sales tax exemptions for various services.
Wyoming’s sales tax exemptions cost an estimated $40 million to $50 million in potential revenue, according to an earlier, informal study, said Dan Noble, administrator of the Wyoming Revenue Department’s excise tax division.
A report from the Institute on Taxation and Economic Policy issued a few years ago said the sales tax exemption for groceries was a progressive feature of Wyoming’s tax system. Regressive features were the lack of personal income tax and a corporate income tax.
Wyoming lacks a diversified tax system because the state Constitution restricts a state income tax, said Marvin Applequist, administrator of the Wyoming Revenue Department’s property tax division.
Voters in the November 1974 general election adopted a constitutional amendment that requires that any income tax imposed must allow full credit for all sales, use and ad valorem taxes paid in the taxable year.
Because of mineral production, the state has been able to move the tax burden on to the mineral and mining industries, Applequist said.
Interest from the Permanent Mineral Trust Fund pays half the cost of state government every year.
The mineral industry also pays most of the property taxes in the state, in addition to the severance taxes.
The ALEC report said that the inclusion of Alaska and Wyoming, both states with significant revenue from severance taxes and no personal income tax, does not skew the results as some people claim.
Other states with no personal income tax and little or no revenue from severance taxes outperformed states with high marginal personal income tax rates, the report said.
“I think it speaks volumes to the policies that you’ve gotten right here in Wyoming that you’ve lived within your means, that you’ve kept taxes low, that you’ve avoided things like personal and corporate income taxes — which we find has a very damaging effect on job creation across the states,” said Jonathan Williams, director of the Tax and Fiscal Policy Task Force for ALEC, during Mead’s media conference.
One big reason Wyoming has able to keep taxes low and its budgets balanced is because of the hundreds of millions the state takes in each year from oil, gas, and coal. But Williams said having such resources doesn’t automatically lead to prosperity, as the state also needs to be willing to exploit them.
Williams compared Wyoming’s financial stability to energy-rich but financially troubled California, a state that has been more reluctant to tap into its energy resources.
Casper Star-Tribune capital bureau reporter Jeremy Pelzer contributed to this story.