By Tom Still
MADISON – The supporters of the Taxpayer’s Bill of Rights are right about one thing: Wisconsin needs a new way of raising and spending money on state and local government. Our tax system hampers economic growth and there’s too much overlap between units of government.
But the opponents of TABOR are right about one thing, too: A formula-driven solution to controlling taxes and spending could put at risk our economic growth and threaten our quality of life. Amending the Constitution without a plan for what comes next is no plan at all.
Between those seemingly irreconcilable bookends is an approach that could fundamentally change Wisconsin’s tax and spending system and bolster our economy. Getting there, however, will require sound judgment and no small amount of political courage.
Wisconsin needs a 21st century tax system that more fairly spreads the burden among those who produce – the individuals and corporations who earn income and hold or create jobs – and those who consume, which is basically all of us in one form or another.
Right now, Wisconsin overtaxes production. Our personal income tax rates are high, which makes it harder to attract and retain talent – especially the kind of “knowledge-based” workers who are needed for today’s competitive jobs. On a per capita basis or per $1,000 of personal income, Wisconsin ranks firmly in the top 10 income-tax states.
Wisconsin is middle-of-the-road, or lower, when it comes to taxing consumption. Its 5 percent general sales tax rate ranks in the middle of all states. The _ of 1 percent county sales tax levied in most Wisconsin counties isn’t unusual when compared to local sales taxes elsewhere. Most important, many services and goods are exempt from the Wisconsin sales tax. In many states, only food and prescription drugs are exempt from taxes; in Wisconsin, the sales tax exemption list is long.
When Wisconsin taxes income at higher rates, it takes money out of private pockets before it has a chance to be put to work. It also creates a more complicated tax system due to the rules and regulations surrounding the income tax. If Wisconsin cut income taxes and raised sales taxes, the taxation system would be simpler, fairer and better for the economy. Taxpayers would have more choices about how to spend – or invest – their income.
Wisconsin could also export more of its tax burden. In counties where tourism and retail trade is high, up to a quarter of all sales tax revenue comes from people who visit from other states.
Balancing the tax burden between production and consumption is not a new idea. In late 2002, a study group led by former state Administration and Revenue Secretary Mark Bugher recommended cutting state income-tax rates and raising the general sales tax from 5 percent to 6 percent while ending most exemptions. The percentage of state revenue raised from the personal income tax would decline from about 49 percent to 36 percent under the plan, while the sales tax share of annual revenues would climb from about 36 percent to 49 percent.
When paired with spending cuts and government consolidation, the plan could balance the next state budget and take much of the sting out of Wisconsin’s tax burden.
The TABOR approach would limit government growth at all levels to the rate of inflation adjusted for growth. Any increase beyond that would require voter approval in a referendum. In theory, the cost of government would gradually decline as a percentage of all spending. (In order for TABOR to become law, two successive Legislatures must approve a constitutional amendment which must then be approved by voters.)
While seductive, TABOR is also dangerous. It does nothing to change a tax system that is out of step with the times. It would lock in all government spending, good and not-so-good, without regard to the value of that spending. Under TABOR, all levels of education (K-12, the UW System and the Tech College system) would be first to be cut because they collectively represent the biggest single spending category. Less spending on education will ultimately mean fewer people trained for knowledge-based jobs.
Wisconsin doesn’t need to amend its Constitution to control taxes and spending. Legislators and Gov. Jim Doyle should instead reform the tax system and reduce spending through greater efficiencies and consolidation. It may lack the feel-good appeal of TABOR, but it might actually work.
–Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.
