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Tuesday, May 5, 2020

Passing CARES Act Money on to Taxpayers

Our legislature is going to into a special session to decide how to spend $1.25 billion in CARES Act money. Instead, they should pass that money on to taxpayers. Here is what that would mean in practice. Imagine the tax relief you would get.


Two weeks ago I urged the legislature and Governor Gordon to pass on the $1.25 billion CARES Act stimulus funds to taxpayers:
This is equal to approximately six weeks of total state and local government revenue. To pass this on to taxpayers, all the legislature would have to do is to suspend all taxes, fees and charges by the state government and all local government for a period of six weeks. Ideally, start the new fiscal year with this suspension: do not collect a dime's worth of sales taxes, property taxes, excise taxes, gasoline taxes, lodging taxes, severance taxes, driver's license fees, vehicle registration fees or any other taxes, fees or charges, from July 1 to August 15, 2020.
I then explained that by amending the CARES Act funds with a small withdrawal from the LSRA Account, the legislature could provide a full two months of relief for households and businesses around the state.

Here are more details on what the CARES Act pass-through mechanism would mean in practice.

Let us start with the suspension of state-government revenue collections. In 2019, according to the Census Bureau, the state collected $6.24 billion from taxes, fees, licenses and other charges. This money breaks down as follows:

Table 1
SourceCensus Bureau
Revenue in 2019
Property Taxes          273,518,000
Sales and Gross Receipts Taxes          953,905,000
General Sales and Gross Receipts Taxes          770,241,000
Selective Sales and Gross Receipts Taxes          183,664,000
Alcoholic Beverages Sales Tax              1,976,000
Insurance Premiums Sales Tax            26,356,000
Motor Fuels Sales Tax          120,665,000
Pari-mutuels Sales Tax              6,077,000
Public Utilities Sales Tax              3,874,000
Tobacco Products Sales Tax            21,736,000
Other Selective Sales and Gross Receipts Taxes              2,980,000
License Taxes          208,741,000
Corporations in General License            14,923,000
Hunting and Fishing License            40,602,000
Motor Vehicle License            98,837,000
Motor Vehicle Operators License              4,248,000
Occupation and Business License, NEC            50,131,000
Other Taxes          674,540,000
Severance Taxes          668,178,000
Taxes, NEC              6,362,000
Total Taxes       2,110,704,000
Total Revenue       6,242,258,000

Broken down by month, this comes out to:

  • $520.2 million in total revenue, of which
  • $175.9 million are taxes.

Tax revenue collections are not evenly spread out by month, but we have to operate with averages to make this work. Besides, the CARES Act money is already available, so the actual periodicity of tax collections is only a technical matter, not a financial problem.

Based again on these 2019 numbers, a two-month suspension of revenue collections would amount to:

  • $1.04 billion in total revenue not collected, of which
  • $351.8 million would be taxes.

We modify Table 1 accordingly, getting two-month numbers by item:

Property Taxes            45,586,333
Sales and Gross Receipts Taxes          158,984,167
General Sales and Gross Receipts Taxes          128,373,500
Selective Sales and Gross Receipts Taxes            30,610,667
Alcoholic Beverages Sales Tax                 329,333
Insurance Premiums Sales Tax              4,392,667
Motor Fuels Sales Tax            20,110,833
Pari-mutuels Sales Tax              1,012,833
Public Utilities Sales Tax                 645,667
Tobacco Products Sales Tax              3,622,667
Other Selective Sales and Gross Receipts Taxes                 496,667
License Taxes            34,790,167
Corporations in General License              2,487,167
Hunting and Fishing License              6,767,000
Motor Vehicle License            16,472,833
Motor Vehicle Operators License                 708,000
Occupation and Business License, NEC              8,355,167
Other Taxes          112,423,333
Severance Taxes          111,363,000
Taxes, NEC              1,060,333
Total Taxes          351,784,000
Total Revenue       1,040,376,333

This would be a clearly noticeable stimulus for the Wyoming economy. Just the suspension of the gasoline tax would give motorists back $20.1 million. They would also benefit from more than $16.4 million in refund on their motor vehicle licenses. This refund would have to come either in the form of a check paid out for the current year, or as a rebate upon renewal.

A feature, reimbursement check or renewal rebate, would apply to other forms of licensing, including but not limited to driver’s licenses.

Property owners, individual and business, would get to keep more than $45.5 million.

The benefits from suspending sales-tax collections would sprawl in different directions. Conventionally, it is estimated that about one third of all sales-tax revenue comes from the minerals industry. Assuming that this number is correct, the rest of the private sector – businesses and families – would get to keep just over $100 million.

These numbers apply to state government only. We do not have comparable data for local governments; the Census Bureau does not release those until next year. We will have comprehensive 2018 numbers some time this summer. Therefore, any inclusion of local governments will be based on somewhat older estimates.

Based on trends through 2017, we can estimate that local-government revenue in Wyoming amounted to approximately $5 billion for 2019. Approximately 37 percent, or $1.85 billion, is money from the state.

Any suspension of local-government revenue collections would be a matter of jurisdiction; assuming that the state legislature can include them, here is what we would be looking at (again, these are annual numbers):

  • The state portion of local-government revenue would simply be withheld by the state and therefore not benefit the taxpayers;
  • The same accounts for the approximately $140 million that comes directly from the federal government;
  • Of the remaining $3 billion, $1 billion is property-tax revenue;
  • Just over half, or $1.56 billion, comes from fees and charges, of which in turn two thirds come from hospitals.

In other words, broken down for two months, here is what a revenue suspension would look like:

  • Property owners would get to keep $167 million;
  • Hospitals would get to keep approximately the same amount;
  • Property owners would get to keep more than $25 million from suspended sewerage and trash waste management fees alone;
  • Suspension of local-government sales taxes would save the private sector over $14 million.

In total, the suspension of local-government revenue collection would let businesses and households keep about half-a-billion dollars. Together with the suspension of state revenue collections, we would be looking at $1.5 billion being passed on to families and businesses around the state.

To put this in perspective, in 2019 our entire state GDP amounted to $39.6 billion. If we break this down to a two-month period, the stimulus from this CARES Act pass-through feature would equal a 22.7-percent stimulus of private sector economic activity.

Please note that these are 2019 numbers. The current restrictions on the private sector have resulted in a significant drop in GDP, which means that a $1.5-billion stimulus would have an even greater impact on the economy.

To conclude, the CARES Act aid to Wyoming totals $1.25 billion. The scenario explained above gives taxpayers back $1.5 billion. It would be reasonable that the legislature relied on LSRA to fill in the estimated $250 million balance. After all, the LSRA is supposed to be a contingency fund; it has been a very long time since our state faced a contingency comparable to this one.

Wyoming is in bad need of a stimulus of this kind. Our private sector was in bad shape already going into this crisis. In the ten-year period 2008-2018 we had the slowest growing private sector of all the 50 states. We persistently have the highest Government Employment Ratio of all states, and one of the worst records of creating private-sector jobs.

This means, plainly, that we have the weakest tax base of all the 50 states. If the legislature chooses to simply replenish government coffers with the CARES Act money, using only marginal amounts ($50 million or thereabout) even for partial relief for the private sector, it is a safe bet that the tax base in our state will continue to erode, and erode rapidly.

Short of tax hikes, the current plan for simply replenishing government is the worst possible act the legislature could take right now. It is imperative that our governor and our legislative leadership focus on the private sector, not government.

If there are legal hurdles in the way of executing the CARES Act pass-through mechanism, the governor can always declare an economic emergency. Since he can suspend private contracts and other laws under an emergency – as he has done during this public-health episode – he can use the same powers to circumvent any obstacle to this pass-through mechanism.

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