Wednesday, February 22, 2006

Wisconsin Unfriendly to Businesses?

Throughout the debate over the amendment that is designed to put constitutional restrictions on governmental revenue, pro-amendment advocates have asserted that Wisconsin taxes are too high for businesses. The argument goes that as business taxes become more and more out of control, businesses will start to up and leave the state—taking jobs and state income with them.

While it’s probably true some businesses have decided to leave Wisconsin for the lower costs of the South and foreign lands, I started to wonder about the extent of this exodus in light of some recent major headlines. Just a couple weeks ago the City of Milwaukee approved a $25 million city financing package for Manpower Inc. to move its headquarters downtown. And only yesterday the State of Wisconsin approved giving Logistics Health Inc., run by former Gov. Tommy Thompson, $4 million in tax credits to build a facility in La Crosse.

The differences between conservative rhetoric in the amendment debate and what seemed to be the reality of the situation made me decide to look into these charges of unfriendliness a little more closely.

In my hunt for more info, I ran across a Legislative Fiscal Bureau report from 2005 that assesses Wisconsin’s state and local government revenue collections. As part of its assessment, the report looks at the level of corporate income taxes paid in Wisconsin between 1982-1983 and 2001-2002 (page 69). According to the report, the total corporate income taxes paid in Wisconsin between those years averaged an annual increase of 2.2%, amounting to a cumulative change over the two decade period of 51.7%.

This may sound like plenty of an increase, but when we turn our attention to individual income taxes paid in Wisconsin over the period (page 66), the situation is a bit different. Between 1982-1983 and 2001-2002, the average annual increase of individual income taxes was 5.7% for a cumulative increase of 186.8% over the two decade period. (Side-Note: Before pro-amendment advocates get overly-excited about this being evidence that a revenue restrictions amendment is needed, I should point out that individual income taxes relative to personal income in 2001-2002 were actually the second lowest they've been over the two-decade stretch--they were 8 cents lower per $1000 of personal income in 1989-1990; besides, the proposed amendment deals with revenue, not taxes.)

The situation with property taxes isn’t any different, according to another Legislative Fiscal Bureau report from 2005. In 1970, businesses paid 37.1% of all property taxes in the state, while homeowners and renters accounted for 50.6% of all property taxes in Wisconsin. By 2004, the percentage had decreased to 25.5% for businesses while increasing to 69.2% for homeowners and renters.

About the same time as those LFB reports came out in 2005, the La Follette School of Public Affairs at UW-Madison held a conference on government revenue. One of the conclusions to come out of the conference was that Wisconsin businesses paid less in total taxes than businesses in any of our neighboring states including Illinois, Indiana, Iowa, Michigan, Minnesota and Ohio. Plus, the conference discovered that the State of Wisconsin spends nearly $2.7 billion directly on businesses in the state, which is higher than any of our neighboring states.

And governmental leadership in Wisconsin also doesn’t seem to matter, as Democratic Governor Jim Doyle hasn’t been exactly oppositional to corporate interests since ending the reign of Republican governors four years ago.

Plus, businesses in Wisconsin surely benefit from the state’s highly educated population, which is mostly due to our excellent K-12 public schools and our top-notch UW system. I remember moving to Madison a couple years ago and hitting the job market there. I was hoping my advanced degree would stick out a bit, but when I arrived the response seemed to be, “Join the club.” Businesses certainly don’t need to look hard to find one of us, and you’d really be at a loss to find a community in the state that doesn’t have a sizable group of people who received a bachelors or associates degree from one of the well-regarded UW or state technical schools in Wisconsin.

After looking at all of this information, I’m wondering—how exactly is Wisconsin unfriendly to businesses?

9 Comments:

Anonymous Anonymous said...

Often the biggest tax that effects small or mid-size businesses is the income tax. The executives making the decisions don't pay corporate taxes, but they DO pay income taxes. Raise the corporate tax, lower the income tax and less business will flee.

February 22, 2006  
Blogger Seth Zlotocha said...

Thanks for your comment.

If lowering individual income taxes is offset solely by raising corporate income taxes (or even closing the loopholes), I'm on board. If lowering individual income taxes results in reducing government revenue, I'm not.

I think it's obvious the Republican Party won't go along with raising or even tightening corporate income taxes to offset a decrease in individual income taxes. Which is why they avoided the issue, simply blamed the high individual income and residential property taxes on government, and now have proposed a constitutional amendment that would restrict governmental revenue. And surprise, surprise, who is right there with them all along the way? The biggest spending special interest in the state, the corporate lobby group Wisconsin Manufacturers and Commerce.

February 22, 2006  
Blogger Russ said...

Wisconsin has two fundamental individual taxation problems.

1. Our household property taxes are way to high.

2. The total tax burden for $100,000 + Wisconsinites is too high.

Summary

Wisconsin

Income tax for 100K $7,787
Property Taxes $12,595

Total: $20,382

Colorado

Income tax for 100K $$5,464
Property taxes $2,555

Total: $8,019

The Florida Tax burden is even lower than Colorado because they have no income tax.

FL property taxes $5,785

Total: $5,785

The data is clear, the total tax burden, and in particular property taxes, are driving high income Wisconsinites out of the state.

Source of information:

Wisconsin Taxapyers Alliance

February 22, 2006  
Blogger Seth Zlotocha said...

Russ,

Did you read my post before commenting on it? I only ask because you don't exactly deal with the topic I wrote about in my post.

As for Colorado and Florida, I'll take the public services and programs provided in Wisconsin over the ones provided in those states any day.

Plus, to see the full tax burden you really should consider sales taxes, too, which are significantly higher in Colorado and Florida than they are in Wisconsin. In progressive Wisconsin, we happen to think that income taxes are the most fair because they don't put the tax burden on our less fortunate citizens. (A hefty sales tax in Florida, at least on some goods, might be more justified because of the high rate of tourists visiting the state each year.)

One quick question, where exactly is the Taxpayers Alliance assuming a person making $100,000 is living for $12,500 per year in property taxes? I'm currently house-hunting in Whitefish Bay, one of the highest property taxed communities in the state, and there are few houses that get above the $8000 mark for property taxes, let alone above $12,000 (and there are plenty of nice ones for under $6000).

February 22, 2006  
Anonymous Anonymous said...

I'd like to know what precise "services" i could use here that i can't in florida. That "services" argument is sp outdated and predictable its funny. The essence of the original post is that businesses should pay more taxes because everyone else pays more taxes. How about limiting all taxes to a reasonable level, reducing revenue, cutting spending, and limiting the size of government to a manageable level.----Oh, i forgot, we need those 30 member county boards, "back-up" positions at UW, 100K per yr MATC professors, and sweetheart pension deals to make our "services" so much better.

February 22, 2006  
Blogger Seth Zlotocha said...

One public service that Wisconsin has that Florida doesn't is a health care program for low income families called BadgerCare. Florida has a program for kids called KidCare, but it doesn't cover the rest of the family.

If you're looking for another, the public schools in Wisconsin, K-16, are consistently ranked among the top in the nation--the same can't be said for Florida.

According to the WI Blue Book, the state of Wisconsin spends the biggest part of its revenue on the Department of Health and Family Services (20%) and the Department of Public Instruction (16.7%), which is a big reason Wisconsin is one of the top states in the country in those categories. Our money is getting us exactly what we wanted and expected it to.

Also, if you consider total state and local government revenue collected, Wisconsin is only slightly higher (see pg. 16) than Florida. Wisconsin total revenue per capita in 2001-2002 was $5,776.48 while Florida's was $5,549.42; or, to put that in relation to personal income, Wisconsin state and local governments only collect $3.50 per $1000 of state personal income more than Florida. The state of Florida is obviously getting that revenue from somewhere--and it's not thin air.

And you actually missed the essence of my post, which was to point out that businesses in this state don't have it so bad. If business taxes go up, I think they should do so to help bring individual taxes down--no one is arguing to make them both unnecessarily high.

February 22, 2006  
Blogger Russ said...

Seth

You can try to rationalize Wisconsin's high government spending and the resulting high taxation but it's old news. It just doesn't wash any longer.

Wisconsin is a welfare state for public employees. We pay them to much and we give them Rolls Royce benefits.

For some years now we have had to endure this transfer of wealth from the private sector to the public sector.

Private sector citizens are simply feed up. They are tired of providing a life style for public workers they can't begin to provide for themselves.

Many wealthier people simply leave. It should be obvious that the wealth exodus compounds the problem but it seems to have no effect on the tax and spend crowd.

One can only hope that Wisconsin private sector voters come to their senses, realize they are being cheated, and get rid of the tax and spenders at all levels of government.

February 24, 2006  
Blogger Seth Zlotocha said...

So, Russ, providing actual statistical evidence is now considered purely rationalizing the situation?

The fact is government spending isn't going down a public employee black hole--it's going to better the state of Wisconsin for all residents. Just look at how much state money is spent on public services. I provide the links for you in these comments and all over my blog (LFB reports, the Blue Book, etc.), just go check it out for yourself.

I guess what I'm saying is look at the actual evidence, not simply the rhetorical talking points from the right. Providing figures from the Wisconsin Taxpayers Alliance is the right idea--although your property tax estimate was, by any stretch of the imagination, way high--but the revenue restrictions amendment that's on the table is about far more than just income taxes--it's about total governmental revenue.

By the way, the Wisconsin Taxpayers Alliance has yet to formally give its support to the revenue restrictions amendment, and the group's president said just the other day that part of the amendment "doesn't seem to be in keeping with basic accounting and economics." Not exactly a ringing endorsement.

February 24, 2006  
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