Christian Schneider

Author, Columnist

The Business Tax Tornado

Yesterday, the news we all expected finally came down:  state tax receipts are expected to be $1.6 billion lower over the next two years, bringing the current budget deficit up to $6.6 billion.

Most of the coverage of this shortfall will be forward looking, and focus mainly on what steps legislators going to take to make up the shortfall.  But it’s also instructive to look at how we got where we are.

Here’s a list of the percentage reduction in tax collections over the previous year for the three largest categories:

Income Tax:            -8.3%

Sales Tax:               -3.3%

Corporate Tax:       -28.0%

The income tax reduction hurts the most, since the income tax is the largest single tax collected.  The 8.3% one year reduction accounts for 86% of the $1.6 billion additional shortfall.

But I would call your attention specifically to the Corporate and Franchise Tax, which is down a whopping 28% from last year.  This represents a $282 million reduction from previous estimates.

It’s not too difficult to figure out why business taxes are down.  If you’ve picked up a newspaper in the last year, you know that business receipts are plummeting, leading to an unemployment rate of 9.4% in Wisconsin.

But secretly, liberal groups are cheering, as plummeting business tax receipts strengthens their most common – and also most inaccurate – talking point: that somehow businesses aren’t paying their “fair share” of the tax burden.   Liberal groups like the Institute for Wisconsin’s Future advocate for higher business taxes on the premise that businesses are paying less in taxes and individual taxpayers are paying more, as a percentage of the total tax burden.  With businesses taking on large losses, and therefore paying less in income tax, it skews the ratio even more in favor of these groups, who like to argue that businesses are “dodging” their tax burden.

This was an incredibly weak argument to begin with.  The business/individual tax ratio could be skewed for any number of reasons.  If the economy was doing well (as it did through the 1990s), individual income could grow at a more rapid rate than business receipts.  As a result, it would appear that individuals were paying more as a percentage of taxes, even though it meant that incomes around the state were actually doing very well.  Conversely, business taxes could drop, as they are now, if businesses leave the state or close down.  This doesn’t mean businesses are paying less of their income in taxes, just that there are fewer of them and that they have diminished receipts on which to pay taxes.

Yet earlier this year, liberal groups had their way and sucessfully lobbied for a massive new tax (called combined reporting) on the same businesses that we now know are swimming in red ink.  Shockingly, the $282 business tax shortfall expected by the Legislative Fiscal Bureau actually includes the combined reporting tax receipts.  So even though they increased business taxes by $186 million, receipts are still $282 million short.  

It doesn’t take a genius to figure out that this punitive new business tax may have actually cost us as much revenue as it created.  New business taxes force higher unemployment, which gives us fewer taxpayers.  Higher business taxes also lead to more expensive goods, which could harm state sales tax receipts.

Furthermore, higher corporate and franchise taxes also force businesses to either move to another state (or country) or scale back their operations, thereby diminishing revenues on which they pay taxes.  (The same phenomenon occurs when states drastically increase cigarette taxes – fewer people buy cigarettes – at least legally – and tax receipts actually drop.)

But this is a dream scenario for lefty groups, which sets a spiral of taxation into effect.  They raise taxes on businesses, which causes business tax receipts to drop.  Then, they argue that businesses aren’t paying their fair share, and lobby for even more business taxes.  The circle is complete – and forces the remaining individual taxpayers in the state to pick up the tab when unemployment skyrockets and business tax receipts drop to virtually nothing.

4 Comments

  1. Orville Seymer

    May 12, 2009 at 8:03 pm

    The real answer to this dilema that we are in is for the government to reduce it’s workforce, then we can all have a reduced tax burden.

    It is unfortunate that those who currently hold the power in the state legislature don’t see it that way.

  2. Is it easy to tax people who leave the state for good because they can’t afford to fund Doyle and the Trial Lawyers and the Indians children’s tuitions? How does that tax collection generally work?

    Anyone? Bueller … Bueller … ?

  3. It’s not only reducing the tax rate, it is getting our “public servants” in the Government workforce to actually work eight hours for eight hours pay.

    If you have contacts on the “inside” like I do, who work for county or state Governments you will soon be privy to how little they have to work for their paycheck and how long they take to do projects.

    I personally know a person who planted the flowers and vegetation in the boulevards in Milwaukee and did a lot of the plants, etc. in the domes. He would be out at the sight, waiting for truck and tools to come in and the crew of three who were supposed to bring the truck, black dirt and tools took 1 ¼ days to load the truck. At any construction company they would have been fired. But that is SOP at State and County government jobs.
    In Marinette county I found a county worker sleeping in the county pickup deep in the woods. Later he moved to another spot in another county forest and he was sleeping there. I was doing photography of waterfalls for my company logo at the time so I was traveling and hiking to the various spots.

    When I worked for Michels Pipeline all sorts of guys were putting in for County work. When I asked why they told me the benefits are much better, more stable hours and you don’t have to work nearly as hard for the same or more pay as there are 3 people to do about the same amount of work we have to do here. “You don’t have to bust your ass” was the quote if memory serves.

    Look in the parks and all over our State. Remember when there were trash cans everywhere? Do you know that the State and County workers complained about all the work they had to do to service the trash cans and they either demanded more pay for “all the work” the crying high paid wimps with taxpayer health insurance and pension plans I and my family can’t even dream of, or they wanted the task eliminated from their “job description”. Now we have to “pack out” our own garbage and pay our “public serpents” and deal with trash thrown all over the place that many would have dropped in the trash can if it were there. Do you know what happened to all of the beautiful rest stops around the State and why? Go figure! But the number of State workers are still there. They just don’t have to do the work or spend the time maintaining the rest stops that probably helped to save sleepy travelers lives. I sure don’t know what they are doing with all that time we are paying for. Perhaps if you listen closely to them when you walk by a County or State workers shop you might hear; “Pass the vodka comrade!”

  4. Don’t forget to mention the fact that the outrageous tax rates in Wisconsin are chasing business out of this state further adding to the tax losses.

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