What State Lost Most of Its Tax Base?

Ask a politician who pays taxes and he or she will gladly tell you that “taxpayers, of course!” Then ask a politician what happens to tax revenue if taxpayers lose their jobs. A frightful number of them will not be able to give you an intelligible answer. This is why we hear elected officials talk about tax hikes in times of recessions. And that is why, in some states, legislators talk about raising taxes after a year of artificial economic destruction.

My own home state Wyoming is a picture-perfect example.

No state has lost more of its tax base in 2020 than the Cowboy State. And in no state in the country are legislators bringing forward such a barrage of tax hikes for the 2021 legislative session. The state government’s own economic research division suggests that there is “tax capacity” in the Wyoming economy for a 4.95-percent personal and corporate income tax. This “capacity” apparently exists in a state that just lost almost 13 percent of its tax base.

To start with that number, the tax base is defined as private-sector GDP. This is also the total value of all economic activity (outside government) that takes place in a country or – as in this case – a state, during one year.

Comparing average private-sector GDP for the first three quarters of 2020 to the same period of 2019, we find that Wyoming lost $4,352,700,000 worth of economic activity. This is more than $4.3 billion less of hours worked, goods produced, services provided, payroll paid, consumer spending and business investments.

This 12.9-percent loss is bigger than in any other state:

Table 1: Change in private-sector GDP, Q1-3 2020 compared to same period 2019

Source of raw data: Bureau of Economic Analysis

Change
Washington0.41%
Utah0.21%
Arizona0.14%
Idaho-0.39%
South Dakota-0.93%
Nebraska-1.26%
Colorado-1.35%
Florida-1.45%
Oregon-1.53%
California-1.55%
District of Columbia-1.57%
North Carolina-1.65%
Virginia-1.75%
Georgia-1.96%
Iowa-2.15%
Maryland-2.22%
Arkansas-2.27%
Kansas-2.50%
Massachusetts-2.75%
Alabama-2.84%
Mississippi-2.86%
Maine-2.90%
Indiana-2.90%
Delaware-2.98%
Missouri-3.03%
New Jersey-3.07%
Connecticut-3.18%
Minnesota-3.19%
Illinois-3.34%
South Carolina-3.39%
Kentucky-3.48%
Montana-3.53%
Rhode Island-3.63%
New Hampshire-3.76%
Wisconsin-3.80%
Ohio-3.90%
Nevada-3.95%
Pennsylvania-4.35%
Tennessee-4.43%
New York-4.59%
Michigan-4.73%
Vermont-4.90%
Texas-6.32%
Louisiana-7.24%
New Mexico-7.24%
North Dakota-7.44%
Hawaii-7.72%
West Virginia-9.56%
Alaska-10.40%
Oklahoma-10.45%
Wyoming-12.90%

Broken down by quarter, the Cowboy State lost 20.7 percent of its tax base in Q2 and was down 13.4 percent in Q3. The smaller 12.9-percent in Table 1 is attributable entirely to the growth that took place in Q1.

Both the Q2 and Q3 numbers place Wyoming at the rock bottom of all the 50 states:

Table 2: Change in private-sector GDP, Q2 and Q3 2020, respectively, compared to same periods 2019

Source of raw data: Bureau of Economic Analysis

2020:Q22020:Q3
Washington-5.19%2.29%
Utah-4.44%2.06%
Arizona-5.25%1.26%
Idaho-7.59%1.21%
Florida-7.31%-0.17%
Oregon-7.61%-0.25%
North Carolina-8.04%-0.27%
Iowa-8.16%-0.44%
Georgia-7.66%-0.49%
South Dakota-6.87%-0.53%
Arkansas-8.23%-0.67%
Kansas-9.02%-0.67%
Indiana-9.78%-0.73%
California-7.95%-0.73%
Colorado-7.40%-0.74%
Virginia-7.18%-0.80%
Mississippi-9.92%-0.80%
Alabama-9.08%-0.83%
Maryland-8.13%-1.01%
Delaware-7.56%-1.09%
District of Columbia-6.54%-1.09%
Rhode Island-10.06%-1.10%
Nebraska-7.65%-1.33%
Missouri-9.20%-1.50%
Wisconsin-10.35%-1.62%
New Hampshire-10.60%-1.64%
Minnesota-9.45%-1.66%
Connecticut-8.88%-1.66%
Illinois-8.91%-1.67%
South Carolina-9.58%-1.69%
Kentucky-10.68%-1.69%
Massachusetts-8.64%-1.73%
Maine-9.32%-1.86%
New Jersey-9.82%-1.96%
United States average-9.51%-1.96%
Ohio-10.37%-2.35%
Nevada-12.74%-2.39%
Vermont-12.18%-2.91%
Tennessee-12.49%-3.00%
Michigan-11.89%-3.10%
Montana-10.26%-3.14%
Pennsylvania-11.06%-3.27%
New York-11.21%-4.29%
Texas-12.79%-5.09%
Louisiana-13.76%-5.66%
North Dakota-14.48%-6.74%
West Virginia-17.01%-7.21%
New Mexico-14.86%-7.24%
Hawaii-14.92%-8.50%
Alaska-18.85%-9.47%
Oklahoma-17.27%-9.54%
Wyoming-20.67%-13.40%

The pain in the Cowboy State is spread out across multiple industries. Mining, which in 2019 accounted for 17.5 percent of the state’s private-sector GDP, lost 42.7 percent of its production value. Several other industries saw losses in the 14-15-percent range, including management and support services, consulting (which includes engineering services), accommodation and food services, entertainment and recreation, and logistics services (transportation and warehousing). Wholesale trade was down more than eight percent, with the “other services” category falling more than nine percent.

Retail trade saw a small increase.

While the tax base declined, and declined severely, the government sector of the Wyoming economy expanded its spending. However, almost all of this was attributable to expanded military spending; the state and the local governments held virtually still at a minuscule one-percent reduction overall.

In response to the implosion of their tax base, Wyoming legislators have begun piling up a list of tax hikes for the 2021 legislative session. At the top, for now, is a nine-cent increase in the fuel tax, but other tax hikes are sure to follow. In November, the Revenue Committee heard proposals from the state’s own Consensus Revenue Estimating Group, or CREG, a function within the Department of Administration and Information, on the “tax capacity” of the Wyoming economy.

In a year when the Wyoming tax base has virtually imploded, tax-funded analysts and pundits proposed that there is “capacity” for a personal and corporate income tax at 4.95 percent, plus increases in sales, property and fuel taxes.

At the other end of the economic performance scale, a far cry from the economic wasteland that used to be Wyoming, neighboring Utah continues to show prowess and resiliency. Having been a top economic performer for the past ten years, the Beehive State has shown what fiscal conservatism and attention to economic growth can do for a state.

Utah has also been reasonable with its covid-19 policy responses; here is one example. The governor has also allowed counties to localize responses; restaurants in the Salt Lake City area have been allowed to stay open. The statewide mask mandate has received mixed support from sheriffs around the state.

As a result of the measured response to the epidemic, Utah has been able to add $3.5 billion to its tax base (Q3 2020 over Q3 2019). We will probably never know how it is possible for Wyoming, which is currently kissing the bottom of the barrel, to be so vastly, economically inferior to its western neighbor, when the two states are so close geographically, culturally and historically.

What we do know, though, is that adding new taxes to a state that just lost almost 13 percent of its tax base, is a sure-fire way to inflict irreparable economic harm on that same state.