• WisBusiness

Monday, April 19, 2010

Don't break out the champagne quite yet


By James A. Buchen
Another tax day has come and gone but concerns about the Wisconsin tax burden are as high as ever. Why is there a seemingly endless debate on this topic?

Probably because most individuals and businesses think their tax burden is too high -- regardless of what the tax rankings say. And speaking of rankings, the Census Bureau places Wisconsin's overall state and local tax burden at 14 highest among the 50 states in fiscal year 2006-2007.

That's good news for a state that has hovered in the top ten for decades.

Is it time to break out the champagne and declare victory?

Not quite yet. The Washington D.C. based Tax Foundation, which publishes a more up-to-date ranking says that we slipped back to 9th highest in 2008. And it gets worse. In the most recent State Budget the Legislature and the Governor raised taxes by nearly $3 billion -- among the largest tax increased in state history. It includes a 25 percent increase in corporate taxes, higher capital gains taxes, and a new top personal income tax bracket. Together they represent a larger tax increase for Wisconsin than almost any other state in the country. Experts believe these recent tax hikes will push our ranking even higher next year.

Most people understand that government spending drives taxes, and recent spending increases are another reason to be concerned as we look to the future. The State Budget included a 10 percent spending increase and a multi-billion dollar deficit, creating more pressure to raise taxes in the future. On top of that, the legislature loosened controls on school district spending and teacher salary increases. That will drive property tax hikes and increased state spending for school aids -- already more than 40 percent of the state general purpose revenue budget.

Some people believe that the solution to Wisconsin's tax and spending problems lies in changing the mix of taxes we impose on individuals and businesses. They argue that we should rely more heavily on sales taxes and user fees, two areas where our tax rankings are lower compared to other states. While this approach may have some appeal, be wary of politicians promising to raise one tax to lower another.

The history of taxation in Wisconsin, and arguably the reason we have a relatively high tax burden, is that the legislature created new taxes and increased them over the years based on the argument that the new revenue would be used to lower another tax.

In 1911, the legislature created the first state personal income tax in the nation arguing that they would use the proceeds to lower property taxes. Similarly, when the sales tax was first established in the early l960's, the rallying cry was "property tax relief." Each time the sales tax was increased, from 3 percent to 4 percent and then to 5 percent and then an additional half percent for counties, it was for -- you guessed it -- property tax relief.

So what kind of an impact did all that tax shifting have on Wisconsin's tax burden? Well, today we have both high income taxes and high property taxes, and a high overall tax burden that promises to get worse in the years ahead.

The obvious answer to the tax problem is to limit the growth in government spending at all levels. If we could limit the growth in government spending to a level that is slower than the growth in personal income, the tax burden would shrink over time. Conversely, if government spending grows faster than personal income, a larger and larger share of our families' resources will be consumed by taxes, leaving less and less for food, clothing, shelter and discretionary spending.

At the core, these issues are not complicated or difficult for our families to understand. What we need now is a new generation of political leaders with the will and fiscal discipline to pursue these common sense reforms.

-- Buchen is vice president of government relations for WMC, which represents 4,000 businesses in Wisconsin. WMC is dedicated to making Wisconsin the most competitive state in the nation.

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