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Thursday, December 2, 2010

Shooting the messenger: Why tax reform ideas deserve to be heard


By Tom Still
For those who aren’t diehard shoppers, “Cyber Monday” is a marketing term to describe the Monday following “Black Friday,” which is the traditional mad-dash-for-Christmas-deals day after Thanksgiving. While Black Friday is for people who still shop by foot, Cyber Monday is a day when many companies offer online deals.

It’s a great day for online merchants and consumers, but not so good for tax collectors in states such as Wisconsin.

The Wisconsin Department of Revenue has estimated the state loses $150 million each year in sales taxes on Internet sales and catalog purchases made by Wisconsin consumers who order items from out-of-state vendors. The 50 states collectively lose between $16 billion and $18 billion per year in unpaid sales tax, with $8.7 billion coming directly from online sales.

Not your problem, you say? With most states struggling to plug holes in their budgets, it soon may be.

Many states are pushing to make sales tax laws uniform across state lines – and to begin collecting tax dollars from Internet sales. A federally sanctioned approach could mean states would have the authority to reach across borders to collect sales taxes from online vendors.

The “Cyber Monday” sales tax debate is an example of how state tax laws are often worn down by technology, changing times and evolving economies. It’s why states occasionally need to examine their tax laws to make sure they’re fair to taxpayers, not harmful to the economy and generating enough cash to pay the bills.

That’s the point Rick Chandler, a former state Revenue Secretary, was trying to make recently when he suggested Wisconsin could consider raising its 5 percent sales tax to 7.5 percent in exchange for lowering individual income taxes and property taxes.

Chandler, who once worked for Gov. Tommy Thompson, is no fuzzy-headed liberal. His ideas were first aired in a thoughtful report for the Wisconsin Policy Research Institute, which has conservative leanings on some issues. He was not floating the idea as a trial balloon for Gov.-elect Scott Walker, as some press reports suggested, but trying to illustrate how updating Wisconsin’s tax laws could make the state more competitive.

Of course, the idea was crushed like a grape. The Walker team felt obliged to issue a “no-way, no-how” statement on raising sales taxes, as did many legislative leaders.

Lost in this exchange was the sense that Wisconsin needs to get serious about rethinking its tax code. That doesn’t mean more tax dollars should be collected by schools, state and local governments – but that changing times mean the mix could be altered so certain taxes don’t stand out like sore thumbs.

Wisconsin’s sales tax is pretty much middle of the road (31st) among the states. Individual income taxes and residential property taxes, conversely, rank among the top 10 states. Some analysts believe a shift would help the state’s economy; others believe higher sales taxes would fall hardest on the poor – or would tempt consumers to rely even more on the Internet while shunning local merchants.

It’s symbolic of a larger debate that may be healthy as policymakers consider how to begin balancing the state budget while stimulating economic growth. Using residential property taxes to finance most of local government and schools may have made sense in Wisconsin’s purely agrarian past, but does it make sense in an era when most assets are far more mobile and liquid? Is Wisconsin’s corporate tax a disincentive to attracting new companies? Is the personal property tax an accountant’s nightmare? Are state taxes on retirement income forcing some elderly citizens to move – and to take their money with them?

Those questions won’t be answered short of a more comprehensive look at Wisconsin’s tax system. Again, it’s not a debate about collecting more taxes – but collecting them more effectively in a 21st century economy.

Let’s not shoot all the messengers. Some of them, like Chandler, have ideas worth hearing.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.

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