June 8, 2017
Wyoming and Alaska, which both depend heavily on taxing minerals to fund their state governments, are two of the nine U.S. states that do not have a state income tax. Both also face huge deficits.
But Alaska is considering an income tax now, while Wyoming officials still treat the idea like a plague.
Alaska stopped collecting income taxes 35 years ago, and Wyoming has never remotely considered implementing one in the 82 years since it decided instead to charge state and local sales taxes. The Institute on Taxation and Economic Policy (ITEP) discovered recently that nearly 82 percent of Alaskans could expect to pay less under a progressive income tax than they would under a sales tax designed to generate an identical level of revenue.
That alone is enough to get people’s attention. But there are other reasons that have sparked the interest of Alaskan officials, including Gov. Bill Walker: The state has a deficit of more than a billion dollars.
“In most states, the revenues generated by personal income taxes are vital to ensuring that education, workforce training, infrastructure and other public services are adequately funded,” ITEP noted in a recent study commissioned by Alaska.
Contrary to frequent claims from Alaskan income tax opponents that this revenue-generating option would hurt the state’s economy, ITEP said personal income taxes actually lay the groundwork for economic growth. In fact, if the state doesn’t generate sufficient revenue to cover conventional public services, “such a course of action can actually be damaging to the economy.”
ITEP economists noted that a personal income tax is also likely to generate a more sustainable level of revenue for a state in the long-term compared to a general sales tax, which is regressive. It warned that any state sales tax increases would create a heavier burden for low- and-middle-income earners, while proportionally lowering the tax rate paid by the wealthy.
While Alaska’s House members work to persuade the public that the state needs an income tax, state senators in West Virginia are trying to eliminate their income tax. ITEP senior analyst Aidan Davis said there’s been “a real disagreement in the academic community on the impact an income tax actually has” on the economy. If Alaska passes an income tax and West Virginians scrap theirs, researchers could follow their real-life examples and get a better indication which argument will prevail.
Yesterday, Kansas state legislators put an end to what Gov. Sam Brownback called a “real live experiment” in conservative tax policy, which amounted to slashing personal income and business taxes beginning in 2012. The people of Kansas spent years watching their roads and schools deteriorate without witnessing the “shot of adrenaline” Brownback promised for the Kansas economy—in fact, instead of job growth, the state mostly saw rampant tax avoidance. Voters finally became fed up and replaced a number of far-right legislators with moderate Republicans, who joined with Democrats to create a veto-proof bloc to raise taxes and stop strangling the state’s public infrastructure.
University of Wyoming economist Jason Shogren said a report created by the Tax Reform 2000 commission, which recommended ways to overcome the large budget deficit the state was facing, is still probably the best analysis we have to guide Wyoming out of its budget troubles.
That report’s top recommendation: Establish personal and corporate income taxes.
Shogren said Wyoming has a lot of advantages: “good schools, pretty good roads and a pretty good university. Tax Reform 2000 said to people, ‘If you like these things, how about we try to pay for them ourselves?’ … It addressed the wealth people have accumulated and not just the income flow [through sales taxes].”
Lawmakers never put the Tax Reform 2000 recommendations to the test, because a minerals boom in the early 2000s came through and filled the state’s coffers. They put off action, waiting for another bust to force the government’s hand. That bust has come.
“We knew the bust was coming eventually; it always does,” Shogren said. “We just didn’t do anything. It wasn’t like we haven’t been through this before.”