Christian Schneider

Author, Columnist

Category: Taxes (page 2 of 3)

The Power of the Pen (and Why Property Taxes Might Not Be So Bad)

See that pen on your desk? Right over there, by the stapler. As it turns out, that pen is one of the most powerful instruments you can own. The U.S Constitution was written with a pen. Lincoln freed the slaves with a pen. Most importantly, some girl in middle school probably broke your heart when she used a pen to check the “NO” box in response to your sweaty “Do you like me?” query.

In fact, while Wisconsin state government-related interest groups spend millions of dollars on lobbyists to influence lawmakers, that pen on your desk is the most influential implement in state government. It is the entire reason we structure our Wisconsin state and local governments in the manner we do.

Wisconsin residents pay all kinds of taxes. They pay income taxes (which are usually automatically deducted from their paycheck) or sales taxes (which are automatically added to their purchase), or corporate taxes (which are passed through in the form of higher prices.) Yet with all the billions of dollars in taxes Wisconsin citizens pay, one particular levy stands alone in its repugnance. It is the property tax.

Poll after poll demonstrates that Wisconsin residents object to paying the property tax more than any other tax – even if, say, their income tax liability is greater than the amount they pay in property taxes. But it’s all money, after all, so why is paying property taxes so much more painful?

The answer has to do with the physical way in which each tax is paid. When we pay property taxes, that pen must come off the desk and sign a check over to the government. Rather than automatically handing money over to the government, paying property taxes is a proactive endeavor, usually involving the clenching of teeth, irritability, and alcohol consumption.

The painful act of writing a check to the government has far-reaching consequences. For decades, Wisconsin politicians have been myopic in their quest to relieve the property tax burden on individuals. In 1995, Governor Tommy Thompson sent an extra $1 billion to local school districts to buy down the property tax levies around the state. Governor Jim Doyle’s special commission on school funding suggested raising the sales tax in order to replace a portion of the unpopular property tax. Legislative Republicans fought a bloody internecine war in an attempt to pass the Taxpayers Bill of Rights in an attempt to hold down property taxes. Their Democrat colleagues have spent years pushing a plan to exempt a portion of residential property from having to pay taxes. And this is just the tip of the iceberg.

Clearly, state government is dedicated to keeping you from having to pick that pen up off your desk. But this raises a provocative – and in Wisconsin, almost unspeakable – question:

What if property taxes are the best way to tax?

I recognize that even asking such a question will go over about as well as a complete sentence at the Country Music Awards. But what if there is a case to be made for more reliance on the property tax, and less on income, sales, and corporate taxes?

Obviously, lower taxes and lower spending would be the ideal goal. But if we have to choose one tax over the other, which one does the most good for the economy?

In 2006, conservative Mount Rushmore occupant Milton Friedman re-stated his long-term opposition to taxes, but said “The property tax is one of the least bad taxes, because it’s levied on something that cannot be produced — that part that is levied on the land.”

In other words, taxes on income, sales, and corporations depress activities that are beneficial to a robust economy. They punish work, job creation, and production – all things necessary for the creation of wealth in society. Naturally, the more you tax these activities, the less of them you get – which causes big trouble when the economy starts to recede.

In this month’s Atlantic Monthly, New America Foundation fellow Reihan Salam picks up on this idea, and proposes ending all taxes except for the property tax:

“Chronic revenue shortfalls have crippled local governments ever since, leading to heavier reliance on punishing state income and sales taxes. What if the problem isn’t the property tax at all but rather, well, all other taxes? In 1879, Henry George, a brilliant if slightly crankish autodidact, published Progress and Poverty, a scathing polemic that blamed all economic ills on the private ownership of land. A staunch believer in laissez-faire economics, George found it perverse that we tax productive activities like work and innovative investment while letting landowners grow rich simply because they scooped up property at the right time. In that spirit, George called for a “Single Tax” on the unimproved value of land. There’s a certain compelling logic to the Single Tax that stands the test of time. When you tax income, aren’t you punishing people for working hard? But when you tax an asset like land, you’re simply encouraging the most valuable use of that land.”

In Wisconsin, local governments have levied property taxes since before the state even became a territory in 1836. (It was probably around that time that profanity was invented.) In 1842, Governor James Doty called property taxes “unequal, illegal and highly oppressive.” Wisconsin wouldn’t become a state for another six years.

Since then, one of the primary focuses of the state government has been trying to keep property taxes down. In 1911, when the state began levying an income tax, state government immediately began sending funds to local governments to offset reliance on the property tax.

In the most recent state budget, 55.3% of the state’s general fund appropriations go to local governments for the purpose of holding down property taxes. But this creates an enormous accountability gap, which would be eliminated if the state got out of the business of funding local governments.

Imagine the plight of the typical property taxpayer. If they want to complain about their taxes being too high, they go to the local governments, who blame the state government for not giving them enough money. When they complain to their state legislators, they point out that local governments set property tax rates. Both levels of government blame each other, spending continues to go up, and taxpayers receive no answers.

Shifting taxation to the local level also would benefit civic participation. Studies have show that as more government decisions are moved up to the state and federal levels, the more citizens tend to disengage from civic involvement. When the state takes over more and more of the decision making for schools, fewer and fewer local residents bother to go to school board meetings. When the state micromanages local city, village, and town budgets, fewer people engage in municipal politics at the grassroots level, where decisions are made that most closely affect those constituents.

If state sales and income taxes were cut, and programs like shared revenue reduced (which sends nearly $1 billion per year to local governments) there would be more accountability in how tax dollars are spent. Yes, property taxes would go up to make up for the lost state aid – but then, citizens would be able to more directly affect their tax level and how those funds are spent at the local level.

Furthermore, property taxes are assessed on those that have wealth. They are not necessarily progressive, as everyone in a taxing jurisdiction pays the same rate – but they certainly aren’t as regressive as sales taxes, which force low income people to pay a larger percent of their income to buy things. People that own property tend to have money – and those people may actually do well under a scenario where income taxes are cut and the property tax increases.

Property tax opponents (read: everyone) would argue that property values don’t relate to income – that some senior citizens may be low income, but have a very high value home that they, say, bought for cheap on a lake 50 years ago. Thus, increasing property taxes would hurt those people, as they have little income and high property values.

These individual examples may exist, but in the aggregate, income and property wealth are tied fairly closely.

The following chart compares property values to income in Wisconsin’s 426 school districts. As can be seen, there is a tight correlation between how much people make in income (as reported to the State Department of Revenue) and their property values (as reported to the Department of Public Instruction.) There appear to be about eight outliers – school districts with high property values and low incomes – but several of these are special districts. For the other 418 districts, the more they make, the more in property value they have.

data_chart

Clearly, relying more heavily on the property tax and less on the sales and income tax would be taxing people with more means. Furthermore, reducing sales, income, and corporate taxes at the state level would be rewarding activities that would get the economy moving once again – more incentive for job creation, for advancing in one’s career, and for purchasing goods to aid in business development.

A plan to shift taxes away from economy-boosting activities and on to property taxes has some perils, however.

First, such a plan would need the state’s finances to be somewhat in balance to work. As it is, the state’s structural deficit stands at $2.2 billion going into the next budget. In other words, the state could shift $2.2 billion in spending onto the property tax in the next two years, without having cut a single cent from the sales, income, or property tax. Consequently, there wouldn’t be any stimulation to the private sector – merely an enormous property tax increase without any economic benefit.

Furthermore, shifting taxation from state to local taxes would make it more expensive to own a home. But the plan would have to come with commensurate reductions in other taxes, which could more than make up for that extra expense. If lowering business and income taxes has the stimulative effects that can be expected, more people will have better jobs, make more money, and pay less in income taxes – to the point that it may supersede the increased cost of a home. And for those with low incomes, programs such as the Homestead Tax Credit can be reconfigured to give the largest relief to those who need it the most.

Maybe shifting taxation away from the productive activities that drive our economy would get the state roaring once again. Maybe it would force us all to live in caves. But it is certainly a discussion that will never occur at the Capitol, where “we’ve always done it this way,” seems to be the most influential argument made by lawmakers. And certainly, in a climate where upwards of 80% of citizens are in favor of freezing property taxes, a shift to local control seems about as likely as state legislators turning the Capitol into a bed and breakfast. (Even if a plan included a commensurate sales and income tax cut.)

But we shouldn’t let an arbitrary thing like how we physically pay our taxes get in the way of how we should more equally distribute taxation for the purposes of bettering our state. In fact, perhaps the state could set up a program to pay property taxes automatically out of paychecks, which people don’t seem to mind – as long as it’s out of their sight.

Just don’t stab me with your pen.

-July 30, 2009

In Case Anyone’s Paying Attention

On late Friday, the state Department of Revenue serendipitously  released the state’s general fund tax collection numbers as of June, 2009.

Income taxes are down 8%, sales and use taxes are down 3.8%, and corporate taxes are down 21.7%.  The only tax revenues that increased over the past year are excise taxes, presumably due to a $1.00 increase in the cigarette tax passed in the prior budget.  (Additionally, excise taxes make up a small percentage of total receipts.)

All total, general fund revenues dropped by 7% in the past year.

With corporate tax receipts hemorrhaging, it seems to be a good time to mandate businesses pay more for health care, no?  Maybe stick them with hundreds of millions of dollars worth of new taxes to drive them from the state?

High Taxes are Great – Until We Have to Pay Them

On Tuesday of this week, representatives from over 60 lobbying groups packed the Senate Parlor in the State Capitol to lobby for higher taxes and more state spending.  Among the groups pushing for more revenue were the Wisconsin Council on Children and Families, the Wisconsin Coalition of Aging Groups, and AARP.

In the press release accompanying the event, the groups push for higher taxes to fund their programs:

Jim Moeser, deputy director of the Wisconsin Council on Children and Families, urged Governor Doyle and state lawmakers to take a responsible approach to fixing the state’s $6.6 billion deficit by adopting both spending cuts and targeted revenue increases.

So we get it – higher taxes are “responsible.”  As long as they’re not paid by their own members.

Less than 24 hours later, these same three groups issued a press release urging the Legislature’s Joint Finance Committee to cut their own taxes.  They urged expansion of the Homestead Credit, which currently isn’t indexed, and thus is losing value relative to property tax increases.  They argue:

The Homestead credit is one of the only significant parts of the Wisconsin tax code that isn’t indexed for inflation. The Governor’s proposal would annually adjust the income limit for the credit, but would leave the maximum credit where it’s been since 1991. The full formula should be adjusted for inflation each year to stop future erosion of this very important program.

So higher taxes are vital, as long as it’s you suckers that are paying them.

As a side note, expanding the credit for seniors is certainly a laudable goal.  One step that could be taken to boost the credit would be to set a higher minimum eligibility age to receive the credit.  Right now, the minimum age is 18 – meaning, the credit is going to a lot of college students who aren’t legitimately “low-income,” but still come in under the $8,000 per year income figure.  Shifting the credit away from college kids who don’t need it to seniors who are legitimately low income would be a worthwhile step.

For more information  on the Homestead Credit, click here.

Look Out for Pterodactyls: Here Come the Democrats

I’ve posted about this before, but this most recent example just clarifies the blatant hypocrisy from both lawmakers and the teachers’ union.

Last week, Governor Doyle announced he would consider “cuts” to K-12 education as a way of making up the additional $1.6 billion deficit the state has recently identified.  (A “cut” simply means “not giving teachers as much money as they want,” even though total spending will continue to increase.)

Of course, when the state aid increase to school districts is scaled back, districts will simply raise property taxes to make up the difference.  Apparently, Democratic lawmakers are taking steps to cap these tax increases.  From last week’s Wispolitics Report:

Without changes to the revenue limits, the cuts to state aid that Doyle and lawmakers are considering could be backfilled with property taxes to make up most of the difference.  

But sources familiar with talks going on between the administration, legislators and school officials said revenue limits on school districts could be tightened to limit the impact on property taxpayers, or there could be a reduction in the per pupil adjustment.

Perhaps you remember such a scheme to hold down property taxes in the face of smaller increases in state aid.  Legislative Republicans proposed similar plans for eight years running – with Governor Jim Doyle vetoing all of the property tax freeze proposals that got to his desk.

In fact, in 2003, WEAC reacted to a proposal similar to the one being proposed by Democrats now by saying it would “return Wisconsin to the Ice Age.”  In the last budget, when Republicans proposed tightening revenue caps to allow an increase of $100 per pupil, Democratic Senator Bob Jauch said he had “a hard time understanding the Republican compulsion to take a meat axe to the children of this state.” Joint Finance Committee Co-Chair Russ Decker said the proposal was like “putting a gun to the head of public education and to students.”

It appears Doyle and legislative Democrats have been doing a little shopping at Menard’s, as they now appear willing to both wield a meat axe and aim a shotgun at our children.  The budget Jauch and Decker will end up voting for might end up being bloodier than the entire “Friday the 13th” movie franchise.

Perhaps the most vocal critic of a plan to cap property taxes was Governor Jim Doyle, who in his 2003 budget veto message, said:

The Republicans in the Legislature had a different approach. Instead of focusing on the problems with the state government’s budget – problems they played a key role in creating over the last decade – they tore a page out of the discredited playbook of the last Governor and pointed their fingers at the leaders of our local communities and schools. They tried to distract attention from their unfair cuts and sham budgeting by resorting to political gimmicks and slogans.

The arguments against their levy limits are numerous, but at the heart is a very basic Wisconsin value: We in Wisconsin have believed for more than 150 years that local communities know best the needs of their citizens.

[…]

That value – trusting our communities to make wise decisions – has served us well in education. It has given us schools that are the envy of the nation. Our children consistently perform at the top of national tests. They are our future. In order for Wisconsin to prosper in an increasingly competitive global economy, our children must have the very best education available to them. Our teachers work very hard to deliver that education, often under extremely difficult circumstances. Making children and teachers the victims of the state’s fiscal mess is irresponsible and inconsistent with Wisconsin’s values.

Is Doyle going to issue a press release condemning his own plan making “children an teachers the victims of the state’s fiscal mess?”  Or does he save that rhetoric for Republicans when they hold one or more of the houses of the Legislature?  Amazing how things change when one party runs everything and you don’t have a reliable bogeyman on which to blame everything.

I can’t wait to hear all the outrage from the teachers’ union when this new plan goes into effect.  More likely, we’ll hear praise heaped upon our lawmakers for “making the tough choices” and showing “fiscal discipline.”

Of course, these aid “cuts” wouldn’t be necessary if the state merely required government employees to kick in a little to their own retirement accounts.

A Very Special Message from WEAC

From the WEAC website, a special message from teachers’ union president Mary Bell:

You need to a flashplayer enabled browser to view this YouTube video

At the end, Bell suggests a new way of fixing the budget deficit, saying we should “revisit the thresholds for targeted tax increases.”  I guess that’s one way of putting it.  If WEAC spent half as much time trying to cut costs as they do coming up with innovative ways to say “tax increase,” we’d be out of this budget jam in a week.

I also enjoyed the stylistic flair of having two cameras filming Bell during her speech, then alternating camera angles.  Here’s a cost-saving tip: sell one of the cameras, then give that money to a new teacher. 

See?  We’re already making progress.

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.

All Aboard the Federal Gravy Train

The Cato Institute has issued a study showing that the number of federal subsidy programs has exploded to over 1,800 in the last decade:

By 1970, there were 1,019 federal subsidy programs, as shown in Figure 1.2 The number of programs grew in the late-1970s, but was cut back in the early 1980s under President Ronald Reagan.

The number of subsidies started expanding again in the late-1980s, but leveled out in the late-1990s as Congress and President Bill Clinton briefly restrained the budget. Alas, all restraint vanished this decade, and the number of subsidy programs has exploded 27 percent with the passing of expansionary laws in agriculture, homeland security, transportation, and other areas.

[…]

There has been a large increase in the number of agriculture programs due to bloated farm bills passed in 2002 and 2008. There have also been large increases in the number of homeland security and justice programs, which subsidize local activities such as firefighting and policing.3 While those are important activities, it would be more efficient if they were funded locally because Congress often steers such funds to projects of dubious quality and little national security relevance.

The feds actually put out a handy guide listing all the federal subsidy plans, called the Catalog of Federal Domestic Assistance.  It’s a 2,205 page document that lists everything from the Wildlife Without Borders – Africa Program to the Peanut Quota Buyout Program.  It’s worth a look to see the sheer magnitude of existing subsidy programs.

Your Fringe Conservative Nutcase Update

In the wake of last week’s tax protests, the last person you’d expect to be pushing for smaller government would be Tom Brokaw.  But here he is today, writing in the New York Times:

In my native Great Plains, North and South Dakota have a combined population of just under 1.5 million people, and in each state the rural areas are being depopulated at a rapid rate. Yet between them the two Dakotas support 17 colleges and universities. They are a carry-over from the early 20th century when travel was more difficult and farm families wanted their children close by during harvest season.

I know this is heresy, but couldn’t the two states get a bigger bang for their higher education buck if they consolidated their smaller institutions into, say, the Dakota Territory College System, with satellite campuses but a common administration and shared standards?

Iowa, next door, is having its own struggles with maintaining population, especially among the young. As the Hawkeye State’s taxpayers grow older and less financially productive, the cost of government services becomes more expensive.

Yet Iowa proudly maintains its grid of 99 counties, each with its own distinctive courthouse, many on the National Register of Historic Places – and some as little as 40 miles away from one another. Each one houses a full complement of clerks, auditors, sheriff’s deputies, jailers and commissioners. Is there any reason beyond local pride to maintain such duplication given the economic and population pressures of our time?

This is not a problem unique to the states I have cited. Every state and every region in the country is stuck with some form of anachronistic and expensive local government structure that dates to horse-drawn wagons, family farms and small-town convenience.

Of course, on Brokaw’s own television network – the one he spent decades building into a reputable news organization – he would be labeled a “teabagging racist redneck” for espousing this preference for smaller government.  Who knew Tom Brokaw’s brain was so underdeveloped?  Who could have imagined he took all his marching orders from Fox News?

Are Taxes to Blame for the Packers’ Bad Season?

The Packers’ crappy season last year can be attributable to a number of factors – poor tackling, slow linebackers, bad blocking, etc.  But do taxes play a role in keeping good talent away from Wisconsin?

In Andrew Brandt’s “Busine$$ of Football” column, he says yes – and specifically calls out Wisconsin for its high tax burden:

The states without income tax, I felt, always had an advantage in recruiting free agent players. Teams in Florida, Tennessee and Texas used the fact that their states had no income tax to show players how much more they would take home than teams in high income tax states (like Wisconsin). In some cases, agents actually showed me data from other teams showing how much more the player would make over the life of the same contract in one of those states. In recruiting players for Green Bay, I would always hear from agents how much more a player would make from, say, the Buccaneers or Texans compared to the 6.6-percent state income tax that Wisconsin would take from Packer players. That and, of course, the weather.

From what I remember, in their early days, both the NBA’s Vancouver Grizzlies and Toronto Raptors had a difficult time attracting free agent talent due to the burdensome Canadian tax load.  (And the fact that a player could die waiting in the emergency room to get a sprained ankle looked at.)  It makes sense that agents have gotten so sophisticated that they can now dice the numbers up on a state-by-state basis.

So even if you’re not tuned in politically, oppose Jim Doyle’s tax increases to save the Packers.

15 Things About Governor Doyle’s Proposed Budget

In the next few days, the media will go to work listing the major tax increases (see below) and policy initiatives in Governor Doyle’s proposed 2009-11 budget.  Here are a few things of interest that might get lost in the shuffle:

1. In his budget address, Doyle didn’t even pretend the budget was balanced.  Instead, he attempted to inoculate himself against criticism by listing all the things he would have to actually cut to get the budget back to a structural deficit of zero.  As seen on page 37 of the “Budget in Brief,” Doyle’s budget leaves an accrual-based deficit of $2.5 billion in 2010 and $2.3 billion in 2011.  Keep this clipping for the scrapbook for when Doyle blames someone else for the giant budget deficit facing him (assuming he’s still around) when putting together the 2011-13 budget.

2.  Doyle’s budget increases the amount the state has to be in deficit before a budget adjustment bill requirement goes into effect.  Currently, if there’s a shortfall of .5%, the governor has to introduce a budget fix.  This bill increases that trigger to 2% – increasing the chances Doyle won’t have to be back to fix a bad budget. (p. 11)

3.  The budget increases the “state aid for the arts” program by 5%, or $188,600 in general purpose revenue over the biennium. (p. 6)

4.  After the recent “Public Enemies” film debacle (where the state gave a Hollywood crew $4.6 million so Johnny Depp could get nice haircuts), Doyle eliminates the tax credit program altogether ($5 million per year) and replaces it with a much more modest grant program of $500,000 per year. (p.11)

5.  While the budget document is supposed to be a no-nonsense look at the governor’s programs, the section on Doyle’s proposed statewide smoking ban oddly contains this argument, as if it were incontrovertible fact: (p. 12)

“The ban will prevent thousands of premature deaths from secondhand smoke exposure and improve the overall health of Wisconsin residents. It is estimated that the smoking ban will result in over $1 million in savings to the Medicaid programs during the first 18 months after implementation.”

6.  The budget adds men as eligible recipients of the Medicaid-funded Family Planning Waiver, which almost certainly  means taxpayer-funded vasectomies (which are already covered in some cases by Medicaid).  The bill appropriates $355,000 in FY 2010 for this change, then reduces funding by $940,300 the next year, citing the “net savings to Medicaid and BadgerCare Plus programs due to a decrease in the number of Medicaid-funded births among the eligible population.”  Ask Nancy Pelosi how well this argument went over. (p. 17)

7.  The 15 person board Governor Doyle set up to spend federal stimulus money gets to play with $650 million that isn’t included in other portions of Doyle’s budget. (p. 4)

8.  The budget blows holes in the school property tax caps in three ways: By exempting costs related to school safety, salary and fringe benefits for nurses, and for transportation costs above the state average.  The school districts with the highest transportation costs are likely to be rural districts with low property tax bases.  This could be sticking a large property tax increase to taxpayers in districts that can least afford it. (p. 8 )

9.  The budget slaps the school choice program in Milwaukee with all kinds of new requirements to ensure the “quality” and “accountability” of the program.  In other words, they want as much bureaucracy in private schools as you get in MPS.  (p. 9)  The bill also allows MPS to count a portion of choice students in their headcounts, so they get more state aid (even though the children do not attend MPS schools.)  This is a newspaper investigative report just waiting to happen.

10.  The budget creates a sales and use tax exemption for fees associated with playing youth sports.  Swing, batta batta.(p. 13)

11.  Doyle’s budget clears the way for Milwaukee to offer bonds to pay for its unfunded pension obligation. (p. 7)

12.  Since the state has a huge budget deficit, it makes perfect sense for the budget to… institute primary enforcement of seatbelts for drivers?  (Which has zero fiscal effect for the state, incidentally.)  And here’s the kicker – officers now have to undergo “cultural sensitivity training in order to prevent racial profiling or stereotyping,”  as if cops have all the time in the world on their hands.  This is no surprise, though, as Doyle said back in October that this would be part of his budget. (p. 11)

13.  The budget creates a Milwaukee Brewers license plate.  Hopefully, the proceeds will go to buying Rickie Weeks a one way plane ticket to the Ukraine.

14.  The budget expands the prevailing wage law to any private construction project that receives state money, as opposed to fully state-financed projects.  This will force higher wages on construction sites and make new buildings more expensive to build.

15.  While these are some of the line-by-line details, the big numbers are what matter.  And while going through page by page, I started adding up some of the real trouble spots in the budget – many of which I addressed in detail in my last report.  Tomorrow, I’ll double and triple check the numbers, add them all up, and explain where the problems lie.

Tax Increases in the FY 2010-11 Budget

Here’s a handy dandy chart detailing the tax increases in Governor Jim Doyle’s proposed FY 2010-11 budget.  Grand total: $2.2 billion.

Tax Increase FY 2010 FY 2011
Adopt Combined Reporting $75,600,000 $111,700,000
Adopt Main Street Equity Act 30,300,000 31,000,000
Extend Sales Tax to Digital Personal Property 4,200,000 6,700,000
Cigarette Tax Increase 127,400,000 130,300,000
Tobacco Products Tax Increase 15,200,000 18,000,000
Very High Earner Income Tax Bracket 175,563,000 136,194,000
Reduce Capital Gains Exclusion to 40% 85,100,000 95,500,000
Nonresident Pass-Through Withholding 38,500,000 0
Decouple from Federal Qualified Production Activities Deduction 38,200,000 33,500,000
Affiliated Entities Sales Tax Treatment 19,800,000 21,000,000
Fully Recognize Throwback Sales 57,700,000 37,500,000
Air Carrier Definition 4,000,000 4,000,000
Economic Nexus Standard for Internet Businesses 1,500,000 1,500,000
Internal Revenue Code Updates -40,560,000 -5,490,000
Angel and Early Stage Seed Investment Credits Revisions 0 -7,000,000
Increased Research and Development Investment Credit 0 -5,000,000
Sunset Film Production Services Tax Credit 5,000,000 5,000,000
Delay Credit for Medical Records Technology Investments 4,500,000 10,000,000
Next Generation Farmer Tax Credit (effective 2011) 0 0
Dairy Cooperative Tax Credit -600,000 -700,000
Meat Processing Facility Tax Credit -300,000 -700,000
GPR Total Tax Changes $641,103,000 $623,004,000
Hospital Assessment $310,021,000 $339,695,800
Oil Company Profits Tax 100,324,900 171,490,300
SEG Total Tax Changes $410,345,900 $511,186,100
NET TOTAL ALL FUNDS $1,051,448,900 $1,134,190,100
Total 2010-11 $2,185,639,000

Alternate Headline Suggestion

AP story from today\’s Wisconsin State Journal:

\”Doyle worried that Legislature will do little in 2008\”

How about:

\”Taxpayers Fear Legislature Will Do Something this Spring?\”

Pledging Allegiance to Higher Taxes

The long national nightmare brought on by the late Wisconsin State budget is now over. Legislators can stop sleeping in the Capitol. Newspapers can cease breathing into paper bags, and finally return to their usual reports of how your kid’s Halloween candy is poisoned, how Thanksgiving turkey puts you to sleep, and how your Christmas tree will more than likely burn your house down. By next week, people will have forgotten this budget impasse ever took place – even as of this writing, it seems like the news cycle has passed.

Assembly Speaker Mike Huebsch deserves a lot of credit for negotiating the best budget he could. Huebsch was in a box that got smaller and smaller every day – and while the new budget certainly has flaws, it’s important to note that it is a negotiated document. Everyone doesn’t get everything they want.

In fact, the Democratic Senate is so displeased with the end result of the budget process, they threw their leader overboard. Democrats in the Senate believe they gave up too easily on budget items like the oil company tax, hospital tax, combined reporting tax increase, and the $15.2 billion “Healthy Wisconsin” plan. All items Huebsch was able to scuttle through negotiation.

That being said, many conservatives are upset with the final budget. The $1.00 per-pack cigarette tax increase, $200 million raid of the Patients Compensation Fund, and various automobile fee increases are like kryptonite to fiscal conservatives. And it leaves one important question to ask: “What are the Republican achievements in this budget?” Shouldn’t budgets be about more than just blocking Democrat tax increases?

It wasn’t too long ago that Republicans held both the Assembly and the governorship, with Democrats controlling the Assembly. The situation in those years shared much of the same dynamic as the process from this year – the budget went to conference committee, where it was negotiated with the oversight of a governor with a strong veto pen. Before, it was Republicans Tommy Thompson and Scott McCallum. Now it’s Democrat Jim Doyle.

Yet even in those years where the Chuck Chvala-led Senate Democrats were the minority in budget negotiations, they always emerged from the budget with some sound Democratic talking points. The SAGE program was a new school spending program with the intent of shrinking school class sizes. It was introduced by Governor Thompson, passed through the split-legislative negotiating process, and became law, where it is now a $98 million per-year program. The SeniorCare prescription drug program was introduced by Governor McCallum, survived the 2001-03 budget, and has grown from a $59 million program in 2002-03 to a $141 million program in 05-06. Other programs such as the Stewardship land purchasing program emerged from similar budget negotiations.

Now, these are all programs Democrats readily take credit for. In fact, when Chvala was attempting to evade his criminal charges, his supporting statements mentioned each one of these programs as Chvala-led initiatives to better the state of Wisconsin. Yet they were passed out of a budget process dominated by Republicans.

Now that the shoe is on the other foot, what tax cuts or spending reductions can Republicans take out of this budget and present to the voters? The talking point seems to be that the Republican Assembly blocked some damaging Democrat-initiated tax increases, which is true. But in previous budgets, Democrats weren’t simply content to block GOP plans – they went on offense to promote their own new taxes and spending.

Much of this can be attributed to how Mike Huebsch was forced to negotiate this budget. In part, Huebsch was undermined by his own caucus members, many of whom had signed inflexible pledges vowing not to vote for any budget containing tax increases. This left him unable to present Democrats with a strong position from his caucus, as he would need at least half of the Assembly Democrats to vote with him to pass any budget out of his house. Due to the pledges, he was forced not to negotiate directly with Jim Doyle, but to split his negotiations with Jim Doyle and Assembly Democratic leader Jim Kreuser.

In essence, the 27 Republican pledge-signers cut Huebsch off at the knees during negotiations. Rather than pushing for a strong Republican agenda with good proactive conservative provisions, the Speaker had to settle for a diluted budget that barely offended Democrats. Everyone knew he’d need a bucket of Democratic votes.

There’s no doubt that signing no-tax increase pledges is popular with conservative supporters. Yet it’s a poor negotiating tactic. Those Republicans who didn’t want to vote for a budget with tax increases were free to do so when the budget came to the floor – but telegraphing the vote count to the other side while negotiating the contents of the budget deal is just crazy. I wouldn’t let the Assembly negotiate my next car purchase, much less a $58 billion spending document.

So while signing the pledges made a positive statement about individual members of the caucus, it may have crippled the caucus’ position as a whole. The idea that half the Senate Democrats under the leadership of Chuck Chvala would have refused to vote for a budget that he negotiated on their behalf is ludicrous. Each of those members would likely have been invited on an early morning fishing trip on Chvala’s boat.

It’s fine to criticize the contents of the budget as passed. There’s plenty there of which to disapprove. But it’s also important to understand how Republicans got to the point to which they did. The Democrats were always going to demand a budget with tax increases – and with half the Assembly Republicans out of the way, they got what they wanted.

-October 25, 2007

League of Confusion

Despite their supposed \”nonpartisan\” affiliation, the League of Women Voters has traditionally been a solid supporter of liberal causes.  A trip to their own website reveals their positions supporting universal health care and gun control, opposing drilling in the Arctic National Wildlife refuge, and on and on.

This week, the Wisconsin State Senate held a hearing on the so-called \”Frankenstein Veto,\” which would prohibit governors from abusing their veto power by stitching together two or more sentences to make an entirely new law that the legislature never intended. In the previous budget, 750 individual words were vetoed out of the bill to come up with a single sentence that transferred $427 million out of the transportation fund and into the general fund – something the legislature never considered in their deliberation of the budget.

Supporters of the bill tend to be the good-government types. Testifying in opposition were groups like WEAC, the state teachers\’ union, who benefited the most from the aforementioned use of the Frankenstein Veto. (One wonders how they would have been testifying had the creative veto authority been used to cut their funding, rather than increasing it.)

The League of Women Voters testified \”for information only,\” in language that can best be described as confusing.

Their testimony said:

The League of Women Voters of Wisconsin is committed to representative government as established by the constitutions of the United States and the State of Wisconsin.  For this reason, we register our concern with AJR1 and SJR5.  While the proposed amendment purports to ban the partial veto of an appropriations bill, it fails to solve the basic problem of whether or not the Governor has the ability to change the intent of appropriations passed by the Legislature.

The current amendment continues to allow for deleting parts of a single sentence.  Furthermore, it would permit governors to delete larger portions of an enrolled bill as long as they do not \”create a new sentence by combining parts of 2 or more sentences of the enrolled bill.\”

Our concern about the partial veto is not a partisan one.  Governors of both parties have used the partial veto extensively.  The laws that result from the exercise of the partial veto frequently contain new taxation or new programs that have not been considered or enacted by the Legislature.  Whether or not we agree with the results of these vetoes, the fact remains that the people of the State of Wisconsin, represented in the Senate and Assembly, are denied participation in the process.This particular amendment attempts to address that failing.  However, as written it would not eliminate the Governor\’s ability to create new taxation or programs through a partial veto in the final step of the budget process.

Huh?

So they are for representative government, and think the governor\’s current veto authority violates that principle.  But they oppose any action to rein it in, because it doesn\’t go far enough?  They say that the proposed amendment would allow governors to veto large sections of the bill – is this something they oppose?  This is similar to the item veto virtually every other state has.  Do they think the governor should only be able to veto the whole budget?

The more likely scenario is that they wanted to oppose the bill to side with the governor, but they couldn\’t be on the wrong side of a good government issue.  So they used the tactic of saying the bill doesn\’t go far enough – which puts them in the strange position of having to argue how Wisconsin is better off if the legislature doesn\’t pass an amendment that gets closer to their stated goal of \”representative government.\”

Gouged by a Nut Roll

I\’m pretty sure I\’m the only one in our office building that eats the Pearson\’s Nut Rolls out of the vending machine in the basement. I can see where people would think they\’re gross, but I\’m a sucker for nougat.

\"\"

Anyway, yesterday I noticed the price of said nut rolls has jumped from 70 cents to 80 cents.  That would be a 14.2% increase in one day.  Then I noticed a piece of paper taped to the top of the vending machine that explained it:

The surge in energy prices has made processing and transportation from our suppliers significantly more expensive.

So, the vending company is passing on the increase in gas prices on to me, a loyal salty nut roll consumer.  This is an outrage. Businesses should be able to recoup their operational costs on the backs of customers.  Isn\’t Governor Doyle proposing banning the vending company from passing the gas price increase on to my snacks?

You can see the whole vending company letter here.

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