Wisconsin isn’t facing a $3.3 billion deficit because taxes aren’t high enough. Revenue has dropped because, due to high unemployment, there simply aren’t enough people paying taxes. To fill the deficit, instead of creating new taxes, Governor Scott Walker had decided to create new taxpayers.
It’s been well publicized that Walker intends to create new workers by luring businesses from other states. One piece of catnip he has dangled in front of out-of-state businesses is found in SS SA2 to SB3 and SSAB3 (which, if said out loud, sounds like someone falling down the stairs), the tax break for business relocation.
The bill, as amended, creates both a tax deduction and a tax credit for businesses that relocate to Wisconsin. Under the bill, “locates to this state” means moving either 51% or more of the workforce payroll of the business or at least $200,000 of wages paid to such workforce to Wisconsin during the first taxable year to which the deduction relates. In a nutshell, businesses that move here get to be tax free for two years.
According to the bill’s initial fiscal estimate, the cost of letting new businesses go tax-free is a fairly marginal $280,000. (A revised Fiscal Bureau estimate puts the cost at $500,000, with the expansion of the credit into an accompanying deduction.) The Department of Revenue came up with that estimate by figuring that the average tax liability for first-time filers in Wisconsin was $2,700, then figured that 25% of the 416 new filers in past years have been from out of state. ($2,700 * .25 * 416 = $280,800.)
Let’s hope this bill is a lot more expensive than that estimate.
The bill is meant to lure businesses from other states, which announces a change from past practice. If the tax credit/deduction is effective, the number of businesses relocating should be a lot higher than the 104 the DOR estimates has occurred in the past.
Furthermore, the mere number of new businesses brought in doesn’t tell the whole story. Size matters. If the lure of being tax free pulls in some big businesses (especially in the wake of Illinois’ recent massive tax hike), that will skew the cost upwards significantly. One also imagines many of the “new filers” in Wisconsin were startup businesses, which may account for why their liabilities only averaged around $2,700. Just a couple big fish in the Wisconsin pond will skew those numbers significantly.
Of course, if all goes to plan, the “cost” of the bill (which doesn’t really “cost” the state anything – it merely deprives them of taxpayer money) will be much higher – but the state will recoup that money and more by the number of new taxpayers created. Ratcheting down the unemployment rate from 8% to, say, 4% will have the state swimming in money once again. It will more than pay for the marginal cost of giving businesses a temporary tax holiday.
The bill has passed both the Assembly and Senate, and now heads to Governor Walker for his signature.
And if the tax break doesn’t help the state recoup its money, Wisconsin should just go bet $280,000 on the Packers in the Super Bowl.
UPDATE: After passing the relocation tax cut bill, the Senate engaged in some partisan sniping over who was to blame for the state’s high unemployment rate. Democratic Senator Bob Jauch stood and argued that the recession was a global one, Democrats weren’t to blame, and that the effects were being felt in states like Indiana and others.
Yet an analysis by the New York Times shows that Indiana’s budget deficit is the smallest in the nation, at 2% of spending. Indiana Governor Mitch Daniels has shown that balancing a budget can be done in times of economic distress – in Wisconsin, we just haven’t felt like it.