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
A broad range of groups sent a letter to state Senators last Thursday in opposition to Assembly Joint Resolution 79, which would require a supermajority vote for legislators to approve certain tax rate increases. The letter, which was signed by 20 organizations, asks Senators “not to tie the hands of future lawmakers by putting a supermajority requirement into the state constitution.”
AJR 79 was approved last week by the Assembly on a straight party-line vote. It would apply to three tax rates: the individual income tax, the corporate income tax, and the sales tax. In contrast to increases in the gas tax and tobacco taxes, which wouldn’t be affected by the proposed amendment, none of the three tax rates that the resolution applies to have increased more than once in the last 28 years.
The letter points out that even though those three tax rates are rarely increased, the proposed constitutional change could have a number of unintended consequences:
“For example, it could have the effect of increasing property taxes by limiting the state’s ability to appropriate funding for property tax relief. 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
Conservative and progressive thinks tanks often disagree about the merits of tax legislation. Thus, it’s almost a “man bites dog” story when they find a tax cut proposal that both camps agree is bad public policy. One such bill is an Assembly proposal for a sales tax holiday, AB 108, which got a public hearing last week in the Assembly Committee on Small Business Development.
If AB 108 were to pass, it would make Wisconsin the 19th state that provides a brief period when certain types of purchases would be exempt from the state sales tax. In fact, the proposed bill would create two sales tax holidays – the first weekend in August each year for certain clothes and school-related items, and the first weekend in November when Energy Star qualified products would be exempt.
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.
Governor Walker has said he is interested in eliminating the state’s income tax and raising the sales tax to make up for lost revenue, a move that would result in a tax increase for all but the wealthiest taxpayers.
To replace the revenue lost by the income tax, the state sales tax rate would need to be raised to 13.5%, giving Wisconsin the highest state sales tax rate in the nation.
The tax shift endorsed by Governor Walker would mean the bottom 80% of taxpayers would be paying more in taxes – some of them, a lot more. For example, a taxpayer in the lowest 20% by income would pay nearly $750 more in taxes, on average. Taxpayers in the top 1% — a group with an average income of $1.1 million – would receive a tax cut averaging nearly $44,000.
The following table shows the average tax change by income group if the individual and corporate income taxes were repealed, and the sales tax was raised to 13.5% to make up for the revenue loss. Read more
Revenue Collections Are Strong and the GAAP Deficit Declines
There were a couple of pieces of positive fiscal news for Wisconsin late this week. Most noteworthy is that the latest tax collection numbers from the WI Department of Revenue (DOR) are very encouraging. Tax revenue was up 4.6% over the first five months of the fiscal year (through November), but that’s before making an adjustment relating to the timing of collections, so the 2013 and 2014 figures can be compared more precisely. After DOR makes that correction, General Fund tax revenue is up a little more than $400 million or 8.4% in the current fiscal year.
One of the promising parts of the new data is that sales taxes are up 8.3% over the first five months of fiscal year 2013-14. Sales and use taxes have been the slowest revenue source to recover from the recession, so it’s very reassuring to see that area of tax collections finally rebound. Read more
Today is Cyber Monday, the first day back in the office after Thanksgiving – and one of the biggest days of the year for online shopping. One thing that will be different this shopping season is that for the first time, Amazon will be collecting sales tax on purchases made by Wisconsin residents. Amazon’s move is expected to increase state revenue by $30 million in the first year.
Wisconsin residents always owed sales tax on purchases made online, but until recently, the state could not compel Amazon and other online-only retailers to actually collect the tax. Instead, Wisconsin residents were supposed to report their purchases and pay the sales tax on their income tax forms, something few people did. The fact that online-only retailers did not charge consumers sales tax – even though sales tax is owed on the purchases – gave online-only retailers a competitive advantage over retailers with “bricks and mortar” presences in the states. Read more
After the Joint Finance Committee (JFC) wraps up work this evening on the May 23 agenda, its next meeting will be Wednesday, May 29, starting at 10:00 a.m. in Room 412 E. The major topic of discussion and debate on the 29th will be K-12 education. I believe all of the remaining K-12 issues are on the agenda.
Other items on the agenda that day include some proposals for new sales tax exemptions, some of the smaller DHS issues, and the public benefits fund used for low-income weatherization and energy assistance.
A full list of the items being considered can be found here, with links to each of the papers. The outline below includes links to some of the many Legislative Fiscal Bureau papers:
- Sales and Use Tax Exemption for Qualified Research in Biotechnology and Advanced Manufacturing (Paper #295)
- Sales and Use Tax Exemption for Veterinary Services (Paper #296)
- Sales and Use Tax Exemption for Services of Printing and Imprinting Advertising and Promotional Direct Mail (Paper #297)
- Coordinated Services Teams (Paper #346)
- Peer-Run Respite Centers (Paper #347)
- Office of Children’s Mental Health (Paper #348)
- Health Care Data Organization Grant (Paper #349)
- Graduate Medical Education Program Grants (Paper #350)
- State Support for K-12 Education and General School Aids Funding Level (Paper #505)
- General Aid Calculation for Consolidated School Districts (Paper #506)
- School Performance Incentive Grants (Paper #510)
- Educator Effectiveness Evaluation System (Paper #511)
- Milwaukee and Racine Parental Choice Programs — Per Pupil Payments (Paper #515)
- Expansion of Parental Choice Program for Eligible School Districts (Paper #516)
- Special Needs Scholarships (Paper #517)
- Pupils Enrolled in Home-Based Private Educational Programs (Paper #524)
Jon Peacock Read more
Vote on Non-binding Resolution Shows Bipartisan Support to Require Internet Retailers to Collect Sales Taxes
Increasingly in recent years, there seem to be few tax issues on which liberals and conservatives can agree. So it was refreshing last Friday when there was strong bipartisan support for requiring large Internet merchants to collect state and local sales taxes – just as Main Street retailers do.
Perhaps the bipartisan support shouldn’t come as a surprise because the proposal isn’t primarily about taxes; it’s about fairness. People with a broad spectrum of views about taxes and spending agree that it’s unfair for our local businesses and bad for the Wisconsin economy to allow large Internet retailers like Amazon and Overstock to put their local competitors at a huge competitive disadvantage by not collecting sales taxes.
The 75-24 vote last Friday was on an amendment to add the Marketplace Fairness Act to the Senate’s 2014 budget resolution. Read more