Fast-tracked Tax Cut Bill Hits a Speed Bump
DOR Says Proposed Business Tax Cuts Could Cost $384 Million per Year
Legislators learned today that new corporate tax cut legislation “could reduce revenue by approximately $335 million to $384 million annually.” That news was contained in the Department of Revenue (DOR) fiscal estimate that was distributed this morning to members of the Assembly Ways and Means Committee half an hour before a public hearing on the bill.
The Assembly version of the bill is AB 623 and was introduced last week on December 29th. Early this week the chairperson of the Ways and Means Committee amended the agenda for today’s public hearing to add the new bill. The quick scheduling suggested that the bill might be on a fast track, and perhaps that will still be the case; however, the DOR fiscal estimate is likely to complicate any plans to rush the bill to the floor of the Assembly or Senate.
For many different reasons, I find it distressing when legislators rush consideration of major pieces of legislation and minimize the opportunities for meaningful public involvement. AB 623 is one of numerous examples of how that can create problems. I’m sure I’m not the only person who would have liked to testify at the hearing if the public had been aware that a large tax cut was being considered and had such a huge price tag. (I heard about the fiscal estimate well after the hearing began and rushed up to the Capitol, but I got to the meeting just as it was ending.)
The biggest cost of the proposed changes relates to a provision that would make it easy for sophisticated multistate corporations to design business structures and transactions that have no “economic substance” and are done solely for the purpose of avoiding taxes. According to the DOR testimony on AB 623 at today’s hearing:
“This provision as drafted has a significant $296 million fiscal effect [per year]. We believe, based on past experience, that if this provision is passed, a small number of large multistate corporations with large tax bills would structure themselves to move large amounts of income outside Wisconsin.”
For this part of the bill and others, DOR indicated that there are alternative ways of wording the proposal that would satisfy some of the goals of the bill’s proponents, without adversely affecting state revenue. Based on second hand reports I heard about the hearing, it sounds like the bill’s authors are likely to be receptive to some of the suggestions for how to significantly reduce the huge hit to state revenue estimated by DOR.
Even if the cost is scaled back substantially, it’s surprising and very disappointing that some legislators are pushing the idea of a large tax cut at a time when the state budget is so tight. (The last round of tax cuts contributed to a $414 million increase in the state’s GAAP deficit.) And it’s alarming that the legislative process may minimize opportunities for public debate about the consequences of cutting taxes rather than restoring spending cuts in critical areas of the budget, such as K-12 and higher education.
AB 623 and the Senate companion bill introduced this week, SB 503, would continue Wisconsin down the current path of prioritizing tax cuts over the sorts of investments in the workforce and our infrastructure that would do far more to make Wisconsin economically competitive. Perhaps the very large fiscal estimate will slow down the bill a bit and provide at least a modest opportunity for debating whether this sort of legislation is fiscally prudent and the best way to help Wisconsin’s economy and families.