Supermajority Amendment Puts Wisconsin’s Future at Risk


January 22, 2014

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Wisconsin legislators have introduced an unnecessary constitutional amendment that would make tax reform more difficult, could deepen recessions, and potentially make it more expensive for the state to invest in roads, bridges, and building projects.

The “supermajority” amendment would not promote responsible budgeting or avoid future state deficits. Instead, it could dig a deep hole in Wisconsin’s budget while limiting the state’s options for climbing out of that hole.

The Basics of the Amendment

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. A supermajority vote would not be required to increase the gas tax or increase fees.

Under the amendment, the Legislature could raise tax rates without a supermajority if voters approved the change in a statewide referendum.

 A proposed constitutional amendment requires passage by two consecutive legislatures and approval by voters to be enacted. If approved, the soonest this amendment could take effect is early 2015.

Supermajority Requirement Unnecessary

Supporters argue that supermajority requirements keep state taxes lower than they otherwise would be. However, history shows that a supermajority amendment isn’t necessary to ensure that taxes stay manageable in Wisconsin. Increases in tax rates are very rare in Wisconsin even without a supermajority amendment. For example:

  • The corporate income tax rate was last increased 32 years ago.
  • The sales tax rate was also last increased 32 years ago.
  • Income tax rates have increased once in the last 28 years. That happened in 2009 and affected just 1.1% of tax filers. Income tax rates also decreased several times over this period.

The share of their income that Wisconsin residents pay in income tax, corporate income tax, and sales tax — the taxes covered by the proposed amendment — has declined in the last 15 years. In 2013, these three taxes accounted for 5.1% of state personal income, down from a peak of 6.6% in 2000, as shown in the chart below. Even without a constitutional amendment, the share of income Wisconsin residents pay in these taxes has decreased by a quarter since 2000.

Tax Revenues Falling

There is already a legal obstacle to raising taxes in Wisconsin. In 2011, the state enacted a law that requires tax rate increases to be approved by at least a two-thirds vote in both houses of the legislature. This law is less restrictive than a constitutional amendment, because it can be changed by majority vote and approval of the Governor. In other words, the current law creates a political barrier to voting for tax rate increases, without placing a straitjacket on future lawmakers as a constitutional amendment would.

In other states, supermajority requirements have not led to lower taxes. In fact, states with strict supermajority requirements levy taxes at a nearly identical level as other states, according to the Center on Budget and Policy Priorities chart shown below.

CBPP chart

Closing Doors to Tax Reform

This amendment could make it difficult for the legislature to enact tax reform, even if the changes did not result in additional tax revenue.

Legislators would not be able to decrease the rate of one tax and make up the lost revenue by increasing the rate of a different tax, unless the change was approved by a two-thirds majority in both houses or by a statewide referendum.

Amendment Would Cause, Not Cure, Budget Woes in a Recession

Supermajority restrictions are designed to make it harder for states to raise revenue, even in recessions when a balanced approach that includes new revenue, in addition to spending cuts, is the best way for states to limit the economic damage and support families in times of rising need.

This amendment would limit the flexibility legislators have to enact revenue increases when they are necessary, resulting in deep spending cuts just as many Wisconsin families are hurting, and making it more difficult for Wisconsin to find its economic footing.

Deep cuts to education, health care, public safety, and other services during a recession slow down the economy even further, making recovery more difficult. With a supermajority amendment in place, during a recession legislators may have little choice but to make spending cuts that they and their constituents do not want and that could cause unnecessary, additional damage to the state economy.

Supermajority Amendment Could Cause Rising Fees and Shift Costs to Students

The supermajority amendment is likely to shift costs from some state residents to others. Lawmakers would need a two-thirds majority to raise rates for certain kinds of taxes, making increases more likely in other sources of revenue not covered by the restriction, such as fees and college tuition.

Wisconsin residents have traditionally paid less in fees than residents of other states, but that could change if this amendment is added to the constitution. Tuition at the University of Wisconsin and technical college systems would likely increase, burdening young people and their families with higher costs. The amendment could also lead to higher local property taxes since it could curb state aid to local governments.

Amendment Could Raise the Cost of Building Projects

The amendment is also likely to raise the state’s borrowing costs. Wisconsin, like all other states, routinely borrows money to finance expensive, long-term projects like road-building. A supermajority requirement to raise taxes reduces the state’s financial flexibility, which is a red flag to bond rating agencies that grade a state’s credit worthiness, which is similar to a consumer’s credit score.

A reduction of the rating on Wisconsin’s tax-backed bonds would require the state to pay higher interest rates on those bonds, making it more expensive for the state to invest in roads, bridges, and other building projects.

Conclusion

 The proposed supermajority amendment is unlikely to have much of an effect on tax levels in Wisconsin. Taxes as a share of income have been declining for years in Wisconsin, and typically decades pass between increases in tax rates.

The amendment could have serious consequences on the state’s economic and fiscal health. It is likely to restrict efforts to reform the tax system, hinder the ability of policymakers to respond to future economic crises, hike tuition and fees, and jeopardize the state’s credit rating. It would be short-sighted to limit the ability of future lawmakers to make decisions in response to changing circumstances.

Tamarine Cornelius