Former Democratic governor Dave Freudenthal has written a book that analyzes Wyoming’s economy, its tax structure, and its dependence on mineral extraction and the fossil fuel industry as a major economic driver. “Wyoming: The Paradox of Plenty” was written in response to a question about this reliance and how it came to be. Freudenthal said that question was posed to him by a friend during COVID.
“I, of course, responded that it was the passage of the severance tax in 1969,” Freudenthal said. “And then I got to thinking that that's kind of a flip answer. So, I set about finding out how it really happened and that's what led me to do the research.”
The paradox of plenty is an economic concept, which is also known as the natural resource curse, and states countries with an abundance of natural resources, such as those rich in minerals and fossil fuels, experience less economic growth or worse development than countries with fewer natural resources. While not all economists believe this is inevitable for countries that share these characteristics, there are similarities in the theory that are applicable to Wyoming’s situation.
“The primary characteristic of the paradox of plenty is a huge influx of outside capital to develop a resource and have it processed and utilized outside of that region,” he said. “It has some characteristics that fit Wyoming, and then it has one significant characteristic, because I talked about in the book, that doesn't fit Wyoming. But you need a construct in order to talk about ideas and that was the construct that I chose.”
Freudenthal said this difference is in the quality of services and how that money has been used in Wyoming as opposed to other resource-rich countries, adding it’s been well invested in the state’s citizens and has provided funding for and the construction of schools and other public facilities.
After doing the research, Freudenthal wrote the book bit by bit, including time in the evenings, weekends, and in between visiting his family and grandchildren.
The research process, which included analyzing the original arguments for the state’s tax system, were somewhat different than what it later evolved into.
“One of the things that I found interesting in the research was that our founding fathers, the original tax structure was built around property taxes, including homes and residences and agricultural operations and such weird things as pocket watches, and whether you had a gas stove,” Freudenthal said. “Starting within 10 years or more, more or less of statehood, we created a de facto system where instead of valuing all property at 100 percent of its fair market value, we started reducing the taxes applied to everything. But minerals retained the position of being taxed at 100 percent of fair market value.”
The original premise was that all property would be taxed according to its full market value. No more than 12 mills would be applied for these taxes and a majority of the taxable revenue would be allocated to the counties to provide services with the remaining amount going to the state. Freudenthal said without a change to the state constitution, the tax policy ended up just focusing on property taxes more than minerals.
“By the time we did the severance taxes, most property in Wyoming was probably being valued at, 20 [to] 25 percent of its fair market value, and so the state property tax didn't generate the kind of money that it was that it would have otherwise. And that's why I think they went to a severance tax,” he said.
The Wyoming Supreme Court eventually ruled that this taxation practice was unconstitutional in the late 1980s after around nearly a century of it being de facto implemented.
“When the Supreme Court, they finally said in [19]87, it's illegal, violates the constitution [so] in ‘88, we passed the constitutional amendment that says, ‘Fine, we'll change the constitution rather than pay taxes,’” Freudenthal said.
The book also challenges the notions of Wyoming being an independent state, arguing that the perception of how Wyomingites view the state differs from the economic reality of it.
“We see ourselves as the self-reliant, independent, kind of Westerners with this sort of, ‘We carry our own weight, and we pay our own bills.’ But that's not true in Wyoming,” Freudenthal said. “We're paying roughly 20 [to] 22 percent of the cost of all of the services that we obtained as citizens, the rest of it is paid for by mineral severance taxes and federal money that's diverted to the state for various purposes as well as the interest income off of the permanent mineral trust fund. So, this notion that I'm carrying my own weight and paying my own way, it's just not true about us as individuals.”
Freudenthal said the state began to depend on the mineral industry as early as 1900 and that difficult sacrifices need to be made to ensure a long-term future of the state without the energy industry being the driving force it’s been for decades.
“I need to pay more taxes,” he said. “That's something I don’t want to do, but I need to begin to live up to the cowboy mythology that we have, and free up some of those resources that we're getting from the mineral sector and start investing in everything from livable communities to internet…to some degree, we're going to have to pay for some of that infrastructure ourselves. I don't like the idea of paying more taxes. But I also don't like the idea that all my kids have left because there's no jobs for them.”
Investments in broadband internet is something Freudenthal sees as a positive step forward towards a future that is less invested in the mineral and fossil fuel sectors.
Freudenthal served in office from 2003-2011 and is the most recent Democrat to have held that office.
