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Ever since Colorado decided to legalize marijuana there has been an increasingly intense discussion in Wyoming over whether or not the Cowboy State should go the same way. Some people have (for unclear reasons) confidently, consistently, told us that it can never happen here. However, as I explained last year, whenever there is the prospect of a new tax, anything can happen, even in Wyoming. Alas, from KGAB:
Governor Matt Mead is creating a council to gauge the effects of marijuana usage in the state ahead of a legalization initiative that could go before voters next year. Mead announced Tuesday he’s putting together a marijuana impact assessment council. He wants it to report to the public on effects of marijuana before the Legislature convenes early next year. Activists this spring filed initial paperwork to start a petition process in Wyoming that could put a medical marijuana legalization measure before voters in the 2016 general election.
The governor is a former federal prosecutor and so far says he is opposed to legalization. However, he would not be putting this panel together if he were not worried about either of two things: that voters could approve legalization or that the ditch where the state budget is heading is so deep that the state won't get back on the road again.
If the governor is worried about voters approving legalization, then it means he has opinion polls or other credible information that points in that direction. Furthermore, the legalization initiative comes with big promises of big taxes: up to 25 percent sales tax and up to 15 percent excise tax.
As an opponent of legalization I have to hand it to NORML, the organization behind the legalization initiative. By including the prospect of big tax revenues they appeal to state lawmakers in cash-strapped states (Wyoming will soon be one of them) as well as citizens who normally would not support legalization but who feel that it is a responsible decision if it leads to more money for government services.
Which brings us to the governor's concerns over the state budget (and I am confident that he is worried about the structural deficit). With severance tax revenues growing at a fraction of the rate of state spending, and with forecasts giving no hope of a return to the heydays of double-digit revenue growth, the governor faces a situation where he could leave office in 2018 with a state budget in much worse condition than when he took office. No governor wants that on his resume.
So long as the governor is opposed to legalization of marijuana the prospective tax revenues from pot sales in Wyoming will not help the state budget. But the closer we come to an unmanageable situation with persistent deficits in the hundreds of millions, the more easily opponents of legalization will change their minds. It is not entirely impossible that Governor Mead has appointed his evaluation group to come up with an answer that allows him to change his mind.
It would be ironic if Wyoming legalized pot just to save big government. A state that prides itself of being conservative and freedom-loving already today has one of the nation's biggest combined state and local governments; the same conservatives who believe that Wyoming is a small-government state also want this to be a socially responsible state.
Maybe, in the end, legalization will fail (personally I hope so). But the very fact that the governor is worried is a sign that the legalizers have a momentum, and that they very well could come out victorious in 2016.
There are far better ways to prevent a deficit disaster in the state budget than to have government trawling for revenue in morally muddy waters. For one, try a structured exit out of big government.
This week's big news on the economic front is the fiscal crisis in Puerto Rico. With a debt at 70 percent of its GDP the U.S. territory has assumed debt payment obligations that go well beyond what its $28,500-per-year GDP per capita can pay for. Time is running out for San Juan to come up with a solution; if they don't, bankruptcy is a real possibility.
The Puerto Rican debt crisis should be a major wake-up call for Congress. So far, though, that does not seem to be the case, and superficially it is easy to understand why. The federal debt-to-GDP ratio is much higher than the Puerto Rican: including non-publicly held debt it exceeds 100 percent of GDP. The U.S. government can frivolously offload Treasury bonds onto the Federal Reserve, and has been doing so abundantly over the past decade. On top of that, the annual growth rate of the federal debt has fallen for six years straight now, from 24.2 percent in 2008 to 5.4 percent in 2014.
However, the federal-debt growth rate will soon turn up again. The White House's own Office of Management and Budget reports that President Obama's budget and fiscal plan for the next ten years will add more than $5 trillion to the debt. Even their optimistic outlook assumes that interest rates will rise to 4.5 percent by 2020. If, says the OMB, interest rates are just one percentage point higher than their assumption, the federal debt will be $806bn higher in 2025 than under their budget assumption.
It is easy to see how even a slight upturn in interest rates could upset the federal government's finances. Interest rates at six percent, halfway through the ten-year period, would push the total increase in debt past $1 trillion.
That realistic scenario would throw our federal lawmakers and the president into a state of fiscal panic. There would be calls for immediate and decisive action, just as in Puerto Rico - and in Greece, Spain, Portugal and other debt-ridden European nations. The president and Congress would have no choice but to respond with panic-driven spending cuts and ill-conceived tax hikes.
Among the first programs on the chopping block would be federal funds for states. Even a five-percent reduction would deprive Wyoming of tens of millions of dollars - and that could happen just as Wyoming's own structural deficit starts taking a serious toll on the ability of the state to meet its current spending obligations.
Wyoming cannot wait any longer. Our state lawmakers, and Governor Mead, must step up to the plate. They have to start taking our state's fiscal situation seriously, allow themselves to think out of the box and be open to solutions that may seem impossible at first. This is a new fiscal situation for our state, therefore it requires new, innovative solutions.
In the third installment of my series The Structured Exit I present yet another way to permanently address the state's pending, and very serious, fiscal problems. This paper shows how our state can make itself independent of federal funds and thus shield itself against the dramatic repercussions of an acute federal debt crisis. Together with the second installmend in the series, this paper also shows how we can permanently reduce the cost of our state government, making it easier for the state to handle major losses in in-state revenue.
SCOTUS Was Right on King v Burwell Featured
The Global Tax Grab and Your Privacy Featured
I am re-posting this story because so far it has not gotten nearly the attention it deserves.
Would you like the Chinese government to have access to your personal tax records? If not, please keep reading. From the Center for Freedom and Prosperity:
The Organization for Economic Cooperation and Development (OECD) is directing considerable resources toward development of a new framework for taxation of multinational enterprises. According to tax bureaucrats at the OECD, the G20, and finance ministers from large welfare states, base erosion and profit shifting (BEPS) is a serious problem that requires drastic action. Without input from the United States Congress and other elected national bodies, they are rushing to rewrite the rules of global commerce. Available data does not support the contention that BEPS is a serious concern. Nevertheless, the OECD’s sweeping proposals to combat BEPS would create a privacy nightmare and stifle economic growth. Even if there were a problem, better policy responses are available. The simplest and most powerful being adoption of pro-growth tax rates. To make sense of the sudden push for a massive, multinational undertaking where costs are likely to be significant and benefits small at best, if they exist at all, the OECD’s project on BEPS must be viewed in the context of the organization’s long-standing war on tax competition.
Highway Funding in Jeopardy Featured
Earlier this week, in an outlook toward the federal government's budget problems over the next few years, I outlined a troubling but entirely realistic scenario:
It is the spring of 2020. The U.S. economy is humming along at an unimpressive growth rate of a bit more than two percent per year. The federal budget has been running growing deficits for the past few years, and the forecast for 2020 is a deficit of $554 billion. Congress is borrowing more than eleven percent of every dollar it spends. Interest rates on Treasury bonds are at four percent, with forecasts predicting an upward trend for the rest of the year. Total unemployment, six percent, is steady and shows no tendency of shrinking. Almost 9 percent of America's youth are unemployed, with no decline in sight. A recession begins. Normally, this would be not be much of a problem. Normally, the American economy could ride it out - much like the Millennium Recession - and get back to business in 18-24 months. This time, though, it is going to be different. Painfully different.