Tuesday, May 02, 2006

The "Taxpayer Protection Amendment": Restricting What Doesn't Need Restricting

A Legislative Fiscal Bureau report came out yesterday that details the impact of the revenue amendment that squeaked through the Assembly last week by a 50-48 margin.

Proponents will surely point to the fact that the report shows public revenues would be cut by $5.9 billion under the amendment over a 28-year stretch, while those opponents who favor a more restrictive amendment have already said the report shows that the amendment that passed doesn’t do enough.

Unfortunately, they’re both missing what’s most informative about the report.

According to the LFB analysis, under the Assembly-approved amendment, the state was $501 million under the limit in 1983-1984, the most under of all the years, and it was $1.7 billion over the limit in 1999-2000, which is the highest over of all the years.

We are constantly told by proponents that this amendment is intended to decrease taxes -- hence, the title "Taxpayer Protection Amendment." So it would follow that the year the state government was the most under the amendment’s revenue limit, the tax burden would be lowest, while in the year the state was most over the limit, the tax burden would be highest.

A look at the numbers, however, tells a different story.

Another LFB analysis (see page 64) demonstrates that in 1983-1984, the year the state was most under the limit, total state and local taxes in Wisconsin were $130.07 for every $1000 in state personal income. In 1999-2000, the year the state was most over the limit, the figure was $128.17 per $1000 of state personal income.

In other words, the tax burden was less in the year the state took in $1.7 billion over the limit than it was in the year the state was $501 million under the limit.

Of course, this type of analysis is a bit pointless because the Assembly-approved amendment is almost sure to fail this week in the Senate. But what an analysis like this one does is highlight a larger issue with all of the amendments offered this year (and those that are sure to come in the future).

Due to the complexity of public finance, it is impossible to accurately target taxes without necessarily creating the loopholes proponents of an amendment won’t accept.

Every amendment offered this year deals with government revenue, not taxes or even spending. Yet when arguing for an amendment, advocates have used nothing but statistics on taxes. They defend this by claiming that taxes are the real issue.

Of course, a reasonable response is why not just restrict taxes if that’s the ultimate goal? Quite simply, the answer goes, because that creates the unwanted loopholes that allow governments to increase revenue sources such as fees and assessments.

But that’s exactly the problem with proponent’s arguments. They don’t want to consider non-tax revenue until it’s useful for them. Yet the very fact that such things as fees and assessments could be increased if taxes alone are limited proves that all revenue sources need to be part of the discussion from the start.

And on the score of total governmental revenue, UW-Madison economist Andrew Reschovsky found that Wisconsin ranks 23rd in the country in relation to personal income -- less than one percentage point above the national average.

So it's unsurprising that when it comes to non-tax revenue, like fees and assessments, Wisconsin ranks quite low in relation to the rest of the country. In fact, in relation to personal income, the LFB ranks (see page 4) Wisconsin 25th in the nation in terms of charges such as fees and 41st in the nation, nearly 13% below the national average, for all other forms of general revenue like assessments.

Thus, on the issue of government revenue, there is simply not a crisis in Wisconsin. Yet that is exactly what all of the amendments proposed this year cut -- not taxes.

And there’s just no way to limit taxes to the satisfaction of the far fiscal right through the maze of public finance without restricting what doesn’t need restricting.


Anonymous Anonymous said...

I think you just made an argument for Reaganomics.

May 02, 2006  
Blogger molliemous said...

How do you spell idiot? Huebsch?
"This is probably one of the most comprehensive tax-relief measures that the Legislature has passed in 50 years," said Assembly Majority Leader Mike Huebsch (R-West Salem). "We were able to accomplish, with Republican votes only, a cap on spending at the state level. That's a tremendous victory."

May 02, 2006  
Blogger Seth Zlotocha said...

How so, anonymous?

You're right, molliemous, Huebsch more than misses the mark with his comment. But he isn't wrong because the amendment isn't strong enough -- which is the argument of the far fiscal right. He's wrong because public finance is too complex to pinpoint tax relief within broad and restrictive fiscal policy measures like a constitutional amendment.

Tax relief is more effective and direct when it comes from actual cost-saving measures like comprehensive health care reform -- which, if done right, would have the added effect of providing affordable access to medical care for nearly everyone in Wisconsin. Now that's looking out for not only the taxpayer, but also the citizen.

May 02, 2006  
Anonymous Anonymous said...

I don't put much weight in Reaganomics, but your point was: Higher tax burden, lower revenues...lower tax burden, higher revneues.

May 02, 2006  
Blogger Seth Zlotocha said...

That wasn't my point at all, anonymous. I could very easily find years where revenues and taxes were both high and where revenues and taxes were both low.

Perhaps I should've been more clear in my post. My point is that public revenue is too complex to simply say cutting revenues will decrease taxes on a proportional basis. In other words, while revenue and taxes certainly have a relationship, it isn't nearly as tight of one as proponents of the so-called "Taxpayer Protection Amendment" make it out to be.

I simply pointed out the divergence of revenue and taxes in 1983-84 & 1999-00 to demonstrate that complexity. I guess I took it for granted that people would assume there were years where divergence didn't take place.

Not a good move on my part, I see now.

Rather than tax relief via a constitutional or even statutory cap on revenue or spending, I support reducing taxes through directly reducing costs. As I note in the comment above, I think health care is the best place to go after costs right now.

May 02, 2006  
Anonymous Anonymous said...

Yeah, I knew your argument was about the complexity of the issue and I agree with you on that. It was just interesting how the argument shook out.

While fiscally conservative, I also disagree with the TPA because it's a one-size fits-all approach. Plus, if our state and local officials could ever excercise some leadership and fiscal restraint, it wouldn't be necessary.

May 03, 2006  

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