A tax cut that nearly wipes out income taxes for manufacturers is now expected to cost the state more than twice the original estimate, and has reduced resources for Wisconsin’s public schools and university system.
The Manufacturing and Agriculture Tax Credit gradually reduces income tax rates for businesses engaged in manufacturing or agriculture. When the credit is fully phased in in fiscal year 2017, many businesses engaged in those activities will not have to pay any state incomes taxes at all, and others will have their income taxes reduced by at least 95%.
The projected cost of virtually eliminating income taxes for manufacturers and agricultural producers has ballooned since lawmakers passed the measure in 2011. This year, the tax cut is slated to reduce taxes for businesses by $152 million, more than twice as much as was originally estimated. Once the tax cut is completely phased in, the credit will cut taxes for business by a whopping $285 million per year, a price tag $156 million higher than originally expected. Read more
Conservatives Critique “Tax Cronyism,” and Progressives Critique the ALEC Report
I was pleasantly surprised to learn recently that the American Legislative Exchange Council (ALEC) has issued a report calling on policymakers to end the wasteful subsidies given to corporations by state and local governments. Their report titled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth criticizes special tax breaks for certain companies, which it points out tend to increase the tax burden on other companies and put them at a competitive disadvantage.
Corporations are very good at extorting costly subsidies from state and local officials, but some of those corporations and a growing number of policymakers are realizing that these incentives aren’t an effective way to promote economic growth. As WCCF intern Jelicia Diggs wrote in a recent WI Budget Project blog post, a number of businesses in the Kansas City area have prevailed on Missouri legislators to call a ceasefire to the use of incentives for pirating corporations across the border with Kansas. Read more
Figures released Friday by the Department of Revenue indicate that state tax collections were 21% lower in April than in the same month of 2013 – primarily because of a $332 million drop in individual income tax revenue. Perhaps more importantly, tax collections have been falling for the past several months – to the point that total tax revenue over the first 10 months of the current fiscal year is now a little bit (0.2%) below the total at this point of the previous fiscal year.
Of course, part of the sharp decline in April can be attributed to income tax cuts that took effect at the beginning of tax year 2014, and part is the result of reductions in income tax withholding that took effect on April 1. Those variables and others make it difficult to do the number crunching to assess whether the latest drop in tax collections is cause for alarm – especially on a gorgeous Friday afternoon when I’m anxious to get out of the office and start the holiday weekend. Read more
Report Released Today Recommends State and Federal Reforms to Close Offshore Tax Havens
Maine legislators recently gave preliminary approval to a bill that could make it the third state to pass legislation to crack down on corporate tax avoidance in off-shore tax havens. The proposed legislation would close the so-called “water’s edge” loophole by requiring corporations to report income from a list of 38 known offshore tax havens. Passage of the bill would generate an estimated $10 million per year (in a state less than a quarter of the size of Wisconsin).
Oregon and Montana have already enacted such legislation. In 2010, Montana recovered $7.2 million, and state analysts expect Oregon to recover $18 million this year. The problem costs states about $1 billion, according to a report by US PIRG report. You can read more about the bills in these three states in an April 3 Washington Post blog post. Read more
A number of large, profitable corporations in Wisconsin pay little or nothing in state corporate income tax, according to a new report. Loopholes, tax credits, and creating accounting keep the amount these corporations pay in income tax to a minimum.
A constitutional amendment that would make tax reform more difficult, could deepen recessions, and potentially make it more expensive for the state to invest in building projects is making its way through the Wisconsin legislature.
The proposed amendment would change the state’s Constitution to require a two-thirds majority of both houses of the Legislature to pass an increase in the rate of the state individual income tax, corporate income tax, or sales tax. Under this amendment, the Legislature could raise tax rates without a supermajority if voters approved the change in a statewide referendum.
This proposed amendment was approved by the Assembly earlier in February, and is now under consideration in the Senate. A proposed constitutional amendment requires passage by two consecutive legislatures and approval by voters to be enacted.
If implemented, this constitutional amendment could cause a number of problems, including making it more difficult to reform the tax system, limiting options for cushioning the effects of a recession on Wisconsin’s families, and causing fees to rise. Read more
Tax Package Costs at least $30 Million More than Generally Acknowledged
Descriptions of the Governor’s tax plan by the executive branch and the media have pretty consistently understated both the total cost and the amount of the income tax portion of the tax cutting that will benefit wealthy Wisconsinites. The reason for that is that the Governor and most reporters have failed to point out that part of the plan is a set of changes in the state’s Alternative Minimum Tax (AMT). Within a few years that part of the Governor’s proposals will increase the size of the income tax cut by about 50%, but it will only benefit a relatively small number of wealthy state residents.
In his “state of the state” address a few weeks ago, Governor Walker described his income tax plan as providing a $58 savings to a family of four making $40,000, and he added that “no one will get a bigger savings than that.” That would have been an accurate assessment if the Governor had made it clear that he was talking about just a portion of his income tax plan, but he seemed to be describing the full plan. Read more
A proposed amendment to the Wisconsin Constitution amendment limits budget options without offering any meaningful advantages in return, according to a new analysis from the Wisconsin Budget Project.
Under the amendment, a two-thirds majority of both houses of the Legislature would be required to pass an increase in the rate of the state individual income tax, corporate income tax, or sales tax. A supermajority vote would not be required to increase the gas tax or increase fees.
Supporters argue that supermajority requirements keep state taxes lower than they otherwise would be. However, history shows this not to be the case. Tax increases are extremely rare in Wisconsin. The sales tax and corporate income tax rates have not been raised in 32 years. The only increase in the individual income tax rate in the last 28 years, which took place in 2009, affected only about one out of every hundred tax filers. Read more
A constitutional amendment proposed by Wisconsin legislators would restrict the budget options of future lawmakers by making it harder to raise taxes. It would have the effect of making it more difficult to manage the state’s finances, and would probably shift costs from some residents to others and raise the cost of capital projects.
The amendment would change the state’s constitution to require a two-thirds majority of both houses of the Legislature to pass an increase in the rate of the state individual income tax, corporate income tax, or sales tax. The legislature could raise tax rates without a supermajority if voters passed a statewide referendum approving the change. A proposed constitutional amendment requires passage by two consecutive legislatures and a statewide referendum in order to go into effect.
A supermajority requirement would damage Wisconsin’s capacity to manage its budget in way that helps families and businesses. Here’s how:
- The amendment would tie legislators’ hands and make it harder to respond to recessions.
A careful analysis of the four most prominent “business climate” ratings of state tax systems finds them to be “deeply flawed and of no value to informing state policy.” A report published today by Good Jobs First (“Grading Places: What Do the Business Climate Rankings Really Tell Us?”) concludes that business climate studies are actually “politicized grab-bags of data” that contradict each other wildly.
The “Grading Places” report is authored by Dr. Peter Fisher, an economist who has written extensively on economic development. According to Dr. Fisher:
“When we scrutinized the business climate methodologies, we found profound and elementary errors. We found effects presented as causes. We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.”
You can find the complete report and the executive summary here.
Jon Peacock Read more