Mead: Change tax code to meet diversification

Lawmakers should change Wyoming’s tax code to capture revenue from future economic diversification, Gov. Matt Mead said Thursday.

Mead made the remarks in response to the release of a study commissioned by the Legislature’s Joint Revenue Committee that painted a striking picture of a Wyoming tax code ill-suited to capitalize on new economic activity. The study should encourage lawmakers to match his keystone economic initiative and diversify Wyoming’s tax code away from its reliance on the energy industry, he said. That would match Mead’s ENDOW effort seeks to diversify the state’s economy, the governor told WyoFile.

“It’s consistent with ENDOW,” Mead said of the study by economic analysis firm REMI. “I don’t think their message is don’t diversify I think it’s diversify in all ways.

“We have to broaden not only the industries that we have here but the tax structure itself and I’m hoping that the Legislature will take a look at it,” he said.

The study, released Monday, concluded that mining and oil and gas are the only industries sustainable for state coffers under the current tax code, thanks to severance taxes and mineral royalties. Drawing people to Wyoming with well-paying jobs in other industries would result in a net loss for the state because government services — roads, public education, law enforcement — cost more than the new residents and their employers would pay in taxes.

Wyoming’s revenue scheme is heavily dependent on the energy industry, which contributes an estimated 70 percent of the state’s funding. With no personal or corporate income tax and low sales and property taxes, Wyoming residents don’t pay for the government services they use.

A year-long lawmaker review of potential tax reforms fell flat last session, when a slew of proposals failed to gain introduction for discussion by the House of Representatives.

“I was … a little disappointed we didn’t have a more serious discussion last session on taxes,” Mead said.

The Wyoming Republican party — of which Mead is a leading member —  has advanced a staunch anti-tax position, with county and state party officials passing resolutions against considering any new taxes.

Following the study’s presentation to the Revenue Committee on Monday, some lawmakers wondered whether ENDOW or other incentive programs like economic development grants and loans were a waste of taxpayer money.

“We shouldn’t be doing these kinds of subsidy projects until we get a different tax structure,” said Sen. Cale Case (R-Lander)

Subscribe for free.

ENDOW has already faced resistance from some conservative politicians and party activists in recent months. Skeptics cite concerns about crony capitalism and the appropriateness of government involvement in economic diversification.

Mead defended his initiative however, and said he hoped in the face of the REMI study lawmakers wouldn’t choose to abandon economic diversification efforts.

“I don’t want that conclusion to be it’s not worth diversifying our economy because clearly when you get 70 percent of your revenue from one source — minerals — you’ve got to have this diversity,” Mead said.

“I think it would be a very bad decision to say that ‘diversity hurts us and so not only do we not want to expand diversity but ultimately what [we] want to do is have less diversity and have minerals do everything,’” he said. “Of course that is an extreme example that would never happen.”

Rep. David Miller (R-Riverton), a minerals geologist and — as current House Majority Floor Leader — a likely candidate to be the next Speaker of the House, appears to think differently.

“The solution is a state income tax,” he told the Revenue Committee in Riverton, saying it was “clear as a bell.” But, he also said, “I for one do not advocate a state income tax. I enjoy the mineral industry paying all the bills.”

Miller suggested the state could develop new minerals to fill current revenue gaps, and also nodded toward an idea floated by Case to increase taxes on wind energy.

The REMI study focused on personal and corporate income taxes because it compared the revenue impact of economic development in Wyoming to states that have those taxes. But because Wyoming continues to collect significant revenues from the mineral industry, closing the state’s revenue gap might not require a highly contentious income tax, House Revenue Committee Chairman Mike Madden (R-Buffalo) said.

The state may have the lowest property taxes in the nation if personal, commercial and industrial classes of property are all considered, Madden said, citing research done by think tanks in Massachusetts and Minnesota. 

“In my opinion we would not need a personal income tax to stop the bleeding,” Madden wrote to WyoFile, “but a combination of moderate sales and property taxes would work for us since we do have mineral taxes that most other states do not enjoy.”

The change wouldn’t need to be drastic, Madden suggested: “Instead of being 50th if we just moved up to 40th” in property taxes, he said

in a phone interview Thursday.

Madden was reluctant to say the state should abandon initiatives like ENDOW until the tax structure is fixed.

“People need jobs,” he said, “but they also need to have their kids educated. It’s one of those things that there’s no such thing as a free lunch and what we need to do is start recognizing that free lunches can’t be counted on anymore.”

But, Madden said, Mead is more inclined to talk about economic growth and diversification, while lawmakers on the revenue committee are tasked with making the state’s fiscal situation sustainable — long a difficult job. 

While driving home to Buffalo from this week’s committee meeting, Madden said he had ruminated about the last time economic diversification became a serious political buzzword. It was a good thing diversification hadn’t succeeded then, he recalled thinking, because it was not accompanied by tax reform. If people had flocked to the state to staff new industries, Wyoming would have been even more vulnerable to the most recent energy bust.

“The only thing that saved our bacon this time is the fact that we’re not so diversified,” he said.

Both Madden and Mead are on their way out of state politics, at least for the moment. Mead has reached his term limit as Wyoming’s governor and has not filed for any new elected office. Madden, who has chaired the Revenue Committee since 2013, told reporters in April that he would not seek reelection.

UPDATE: This story has been changed since it’s original publication to clarify House Revenue Committee Chairman Mike Madden’s comments.