The most sweeping rewrite of the nation’s tax laws in more than three decades is expected to provide modest, temporary benefits to most Cowboy State taxpayers while delivering massive rewards to wealthy residents and boosting businesses. It may also imperil some social service programs through indirect cuts and changes.
The state’s all-Republican delegation, U.S. Sens. John Barrasso and Mike Enzi and Rep. Liz Cheney, have consistently touted the plan as a middle-class tax cut and, according to most estimates, nearly all state residents will see at least a temporary tax break — an average of over $600 per family.
But the richest 1 percent of Wyomingites — less than 3,000 people, who earn an average of $2.2 million per year — will receive 42 percent of the tax plan’s benefits in the state. The bottom 80 percent will receive just 22 percent, according to an analysis by the Institute on Taxation and Economic Policy.
By repealing the Affordable Care Act’s mandate that individuals purchase health insurance, critics argue premiums may spike and tens-of-thousands of Wyomingites may go uncovered, though other observers say it is too early to determine the impact of that provision.
Because it adds to the federal deficit, the bill may also trigger cuts to programs like Medicare and Medicaid and may reduce the amount of mineral royalty payments to Wyoming, money that is used to fund state programs.
Republicans argue that the new tax law, including the benefits for wealthy individuals and corporations, will grow the economy such that everyone — the working class included — will reap the benefits of higher wages and more jobs. They say that repealing the health insurance mandate will offer consumers more options while leaving the health care exchanges otherwise intact. Observers in Wyoming aren’t sure what the final impact will be, with small business owners cautiously optimistic and health care watchers saying that while the law may destabilize insurance markets in the state it’s too early to predict exactly what will happen.
While Barrasso, Cheney and Enzi have largely focused on the tax cuts being offered to working class families, other Republican lawmakers have said that is not the focus of the legislation.
“It’s fundamentally a corporate tax reduction and restructuring bill, period,” Rep. Mark Sanford, R-South Carolina, told the Washington Post. “(T)here’s trimming if you will, extras, that are built around indeed trying to help folks at different income levels but that’s not what the core of what the bill is.”
The plan, which was signed by President Donald Trump on Friday, slashes the corporate income tax rate from 35 percent to 21 percent. It will also provide benefits to so-called pass through businesses that are not organized as corporations.
Despite GOP talk of spending discipline, the plan is projected to add $1.46 trillion to the nation’s debt over a decade. GOP lawmakers say they expect a future Congress to continue the tax cuts so they won’t expire. If achieved, that would drive up deficits even further.
Wyoming and the new GOP tax plan: How it has unfolded
Wyoming's all-Republican Congressional delegation have been strong supporters of the GOP tax plan in Congress. Here is a timeline of how the legislation unfolded, through its passage and expected signing by President Donald Trump this week.
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But Cheney has argued that the tax cuts will spur economic growth, which will then shrink the deficit.
“The only way we can deal with the deficit effectively is to get economic growth going,” Cheney told an audience in northwest Wyoming two weeks ago, according to the Cody Enterprise.
Several Wyoming business owners are still working out what what the plan will mean for their companies.
John Johnson, owner of Casper’s Johnson Restaurant Group, said that Wyoming’s poor economy during the last two years has made business difficult and tax relief might provide a cushion.
“Any help that you get on that side of the equation, the tax side of the equation, is definitely going to help us,” he said. “I can’t picture that it’d be anything less than positive.”
Johnson said that his company was likely to reconsider cutting health insurance benefits for the families of employees, a recent move necessitated by rising premium costs.
“Depending how this tax things impacts us, if it frees up enough cash we might be able to not cut that benefit,” he said.
Republicans have also suggested that the corporate tax cuts will benefit workers by stimulating economic growth, which will in turn enable companies to raise wages and hire more employees.
Best way for Washington to give Americans the most value for their money is to let them keep it at home. This #TaxReform bill does that, while making American businesses more competitive & unleashing the full potential of our economy. pic.twitter.com/NZHOFzLq3A— Sen. John Barrasso (@SenJohnBarrasso) December 20, 2017
American companies already hold nearly $2.4 trillion in cash and due to current interest rates, they can borrow at historically low cost. Many economists say that at least when it comes to large corporations, if they wanted to be spending more they already would.
For smaller businesses, though, lower taxes could enable expansion — or at least more expansion than is currently planned.
1890 Inc., a clothing store and screen-printer in Casper, recently purchased a downtown building that will allow more space than its current, leased location. Owner Scott Cotton said that he was still reviewing the tax plan with the company’s accountants, but that meaningful savings would help his business.
Pass-through companies, often small businesses, are receiving different tax benefits than corporations because earnings are taxed as the personal income of their owners. The tax bill will allow owners to deduct about 20 percent of business income from their taxes.
“If that’s around the number we’re looking at that’s a gigantic leap for us just in terms of capital investment,” Cotton said. The recently acquired building will require renovation and lots of new equipment.
“If we’re saving that much we could be able to hire new people as well,” Cotton added. “It could be a great thing all around.”
‘A net benefit’
As for whether workers across Wyoming can expect to see significantly higher wages as a result of the tax cuts for businesses, economists and business owners say that is less clear.
Dave Cooper, an economist at the left-leaning Economic Policy Center, said in an interview earlier this year that companies generally don’t pay employees when they make more money. Because corporations are competing with one another, they will generally pay as little as possible within their industry.
Wages rise, Cooper said, as a result of increased minimum wages or when unemployment drops to the point that companies are forced to pay more to attract any workers at all.
“That’s really the whole ballgame,” Cooper said. “If you can get the unemployment rate really low, raise the minimum wage or make it easier for workers to unionize.”
Wyoming’s labor market has already significantly contracted since the start of the energy industry downturn in 2015. The state’s workforce fell 3 percent year-over-year in October according to Wyoming’s Economic Analysis Division and unemployment is at about 4 percent, a rate in line with historical lows.
But most of the high-paying jobs created by the energy industry have yet to return, and many residents who did not leave the state following the bust have taken jobs in lower-paying sectors, such as retail or hospitality.
Today the House of Representatives passed important legislation to cut taxes and simplify our out-of-date tax code. I'm pleased Congress seized this historic opportunity to provide tax relief for Wyoming families and job creators. https://t.co/zEQZfNoHeX— Rep. Liz Cheney (@RepLizCheney) December 19, 2017
Lance Kleiderlein, president of Advanced Wear Coatings in Gillette, suggested that tax cuts alone are unlikely to reverse that trend.
Advanced Wear does various types of manufacturing and offers “exotic coatings” for metal parts, a field of work tied closely to the fortunes of the Johnson County coal industry. Kleiderlein said that he would expand the company if the energy industry recovers. But otherwise he may use the tax savings to cover existing costs, such as outstanding debt.
“If there wasn’t a pressing need (to expand), sure I’d pay some stuff off,” he said.
Kleiderlein said that if tax cuts stimulate overall economic growth that expansion will likely “manifest itself through energy at some point,” increasing demand for coal and creating more customers for Advanced Wear.
“I would imagine we’re probably going to see more benefit from that than a direct impact in our pocket,” he said of the tax plan. “I think it’s a net benefit but I don’t think its a direct benefit.”
Win for the wealthy
Most Wyoming taxpayers will pay less in taxes under the plan. But the wealthiest 20 percent will, on average, receive cuts ranging from 2.3 to 4.8 percent while middle-class families and individuals will see cuts ranging from less than 1 percent to 1.7 percent, according to ITEP.
Ten Wyoming families would benefit from a rollback of the federal estate tax, according to the Center on Budget and Policy Priorities.
A more optimistic analysis by the Tax Foundation, a think tank that has been cited by Barrasso, takes into account both the personal income cuts and what the organization expects to be the economic growth spurred by the business tax cuts.
The Tax Foundation estimate says the plan will create 658 jobs in Wyoming and raise the annual after-tax income of a “middle-income family” by $636.
Those numbers are a dramatic reduction from job and income estimates released by the Tax Foundation in November that found the Senate’s version of the tax plan creating 1,800 jobs and raising incomes by $2,500 for middle-income families, numbers that Barrasso has cited in the past.
ITEP, which is more liberal than the Tax Foundation, found that while average tax savings for Wyoming households is around $2,500, most of those savings will go to the top 20 percent of earners, who will save between $3,100 and $108,000. ITEP’s analysis also found the following:
- Wyomingites making around $15,000 would save about $60 per year;
- those making around $35,000 would save about $300;
- those making around $60,000 would save about $900.
Tax Foundation spokesman John Buhl said the group’s estimate of the economic impact of the final version of the tax plan was less optimistic due largely to the fact that those personal income tax cuts will expire in 10 years. The corporate tax cuts are permanent.
“Over the ten-year window, those temporary cuts do create some dynamic revenue, but in that same time period, they do not permanently increase long-run GDP, when factoring in the expiration,” Buhl said in an email.
The tax plan will also change how income tax brackets are structured and how the IRS accounts for inflation, meaning that if the cuts are allowed to expire as scheduled, in 2027 all but the richest Wyomingites will be paying more than they do today.
The poorest residents will pay between $220 and $270 more than today while the wealthiest 5 percent of earners, with incomes ranging from $468,000 per year to over $2 million, will continue to see savings of $400 to over $14,000 per year, according to ITEP estimates.
Health care concerns
The tax plan also repeals the Affordable Care Act’s mandate that all individuals purchase health insurance. Removing the penalty imposed on those who do not purchase insurance — disproportionately impacts individuals that make less than $50,000 in Wyoming, according to Enzi’s office — will mean a loss of revenue for the federal government. But the mandate repeal offers a net savings because fewer people will choose to purchase insurance that comes with hefty subsidies.
The impact of the mandate repeal is hard to gauge because it is unclear how many people began purchasing health insurance after the Affordable Care Act was passed because of the subsidies it offered or because they were required to.
“I have not seen any models that break that out,” said Denise Burke, an analyst at the Wyoming Department of Insurance. “I wish we had a better way to predict that but we simply don’t.”
Nonetheless, some groups have tried. The liberal Center for American Progress estimated that the repeal would lead to 22,000 Wyomingites dropping out of the health insurance exchange and going without insurance by 2025. That number is almost equal to the total number of people enrolled in the exchange currently, around 24,000.
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“That really concerns us,” Wyoming Hospital Association president Eric Boley said of the mandate repeal. “We really think it will destabilize the insurance market in our state even further.”
But Burke thinks reports of the healthcare exchange demise are greatly exaggerated in part because, for the moment, the federal government is still offering generous subsidies for those who do choose to purchase insurance.
“Some of the media is reporting that the Affordable Care Act has just been gutted,” Burke said. “Well no, it hasn’t ... as long as the (subsidies) continue I think we’ll continue to see numbers that are very similar.”
The risk of repealing the mandate is that healthy individuals who pay for insurance but don’t use it very often will drop out, leaving only those often older or sick individuals who need frequent medical care.
“If you have fewer healthy people and more sick people costs go up and it could have an impact on premiums,” said Wendy Curran of Wyoming Blue Cross Blue Shield, the only insurer on the state’s health care exchange.
The Center for American Progress model also predicted that Wyoming families would see premiums increase an average of $3,460 in 2019, the largest increase in the nation.
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Curran said she was skeptical that anyone could accurately predict how many people will enroll in future years or what premium increases will be.
But she acknowledged that fewer healthy individuals are likely to enroll and that by repealing the mandate without removing the requirement that insurers enroll people with preexisting conditions, people could just wait until they get sick or have an accident before signing up.
“With the mandate there was at least some encouragement that it was appropriate to carry insurance all the time,” Curran said. “This will mean that when you need it you can buy and you won’t have to have it the rest of the time.”
In addition to the direct changes made by the plan to both taxes and healthcare, other ancillary provisions of the law are expected by some to have major ripple effects.
The plan caps the amount of state and local taxes that individuals can deduct from their federal returns at $10,000. As a low-tax state, Wyoming taxpayers will not be as severely impacted by this change as states with high income and property taxes. But the National Education Association nonetheless estimates that pressure from Wyoming residents who would no longer be able to deduct as much of their state and local property taxes would jeopardize $8.3 million per year in statewide education funding and put 82 teacher jobs at risk.
A federal sequestration law from 2010, known as the “Pay-As-You-Go Act,” requires mandatory and automatic cuts to various government programs if a new law increases the deficit. Because the GOP tax plan will add $1.4 trillion to the federal deficit over the next 10 years, automatic cuts to programs like Medicare and Medicaid are expected to be triggered.
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The Center for American Progress found that would translate to a $36 million reduction in Medicare payments to Wyoming health care providers.
If sequestration does take place, Boley, with the hospital group, said that could hit an already battered health sector in Wyoming.
“We’re hopeful it doesn’t come to that,” he said. “I’ve heard to expect it and I’ve heard not to expect it so it’s a tough situation.”
Boley said he is also concerned that because of the increased deficit created by the tax law, Republicans in Congress may turn to actively cutting Medicare and Medicaid to pay for tax cuts.
If the sequestration cuts are implemented, Wyoming would also be liable to lose a portion of the more than $664 million in federal royalty payments it received last year, dollars that are crucial to funding public services around the state.
Enzi and Cheney’s offices told the Star-Tribune earlier this year that it expects those cuts to be waived, something that Congress can vote to do.
Some Republican leaders are concerned about political fallout from the tax plan, especially during next year’s midterm elections, when typically a president’s party loses seats in Congress. That’s all the more true for presidents whose approval ratings dip below 50 percent, and Trump’s have never been that high.
Additionally, the tax law that they see as the GOP’s top talking point appears to be unpopular. Only about one in three voters have supported the legislation in recent days, according to several polls. About half of Americans believe the plan will hurt their personal finances. And two out of three voters say the wealthy will get the most benefits, according to a USA Today/Suffolk University poll released last week.
But in Wyoming, where Republicans are unlikely to lose any federal seats, the congressional delegation has been unrelentingly upbeat about the tax plan.
Enzi posted a long stream of messages on Twitter on Thursday highlighting lesser-known provisions of the tax bill including the ability to deduct medical expenses that exceed one’s income and the ability for employers to write-off the cost of wages for employees who take family medical leave.
“The #TaxReform bill is truly about making a better future for folks in Wyoming and across the country,” Enzi wrote.
The Associated Press contributed to this report