By Rick Chandler
There seems to be an orchestrated effort under way to blame high residential property taxes on businesses. This assertion has been made recently by some legislators, school administrators and local officials who are opposed to a property tax freeze, spending limits, and other efforts to reduce Wisconsin’s tax burden by restraining spending.
The argument goes something like this: Over the past 30 years, the share of total property taxes paid by homeowners has risen while the share paid by businesses has dropped. The claim is that this shift is the result of tax exemptions for businesses. While it may serve some political purpose to make this claim, it’s not true.
Simply put, the changes in the percentages of property taxes paid by different categories of property over the past three decades are primarily the result of changes in the economy, not tax breaks. During this period, residential property values have increased rapidly in Wisconsin – and with it the amount of property taxes they pay. What’s usually not mentioned is that the share of property taxes paid by commercial property has climbed along with the residential share as we’ve moved to a more service-oriented economy.
Manufacturing property and agricultural property have paid a declining share of property taxes, primarily because those sectors have accounted for a smaller share of overall economic activity. Residential property and commercial property have seen more rapid price appreciation and more new construction than the manufacturing and agricultural sectors.
The basic figures are not in dispute. According to the Legislative Fiscal Bureau, from 1970 to 2003 residential property went from paying 51 percent of property taxes to 69 percent; commercial property went from 19 percent to 21 percent; manufacturing property went from 18 percent to 4 percent; and agricultural property went from 10 percent to 3 percent. However, the figures also show that it’s wrong to conclude that these changes were primarily the result of tax exemptions.
While tax law changes had some influence on these trends, economic trends had a much greater effect. The recessions of the early 1980s and the early part of this decade caused many manufacturing plants to close or downsize. Obsolete buildings have declined in value, been converted to commercial or residential uses, or been abandoned. Agricultural land values plummeted in the 1980s and much agricultural land has been converted to other uses.
The adoption of the manufacturing machinery and equipment (M & E) exemption in 1974 contributed to a drop in the percentage paid by manufacturing property between 1970 and 1975, but the share paid by manufacturing property continued to decline after the M & E exemption was implemented. The share paid by agricultural property declined from 1970 to 1995, before the adoption of the use value assessment law, which lowered agricultural assessments by assessing agricultural land at its value if used for agricultural rather than development purposes. The share paid by commercial property has increased overall since 1970, with increased commercial activity more than offsetting the adoption of an inventories exemption in the 1970s and an exemption for computer equipment in 1999.
The critics should remember that these tax law changes have helped economic development and job growth in Wisconsin. Highly-paid manufacturing jobs and fast-growing information technology jobs are encouraged to stay in Wisconsin because we do not tax manufacturing equipment or computers. Because of their positive effect on job growth, these exemptions were adopted with broad bipartisan support. For example, the M & E exemption was approved by Democratic Governor Patrick Lucey, an Assembly controlled by Democrats, and a Senate run by Republicans. It’s also important to remember that businesses continue to pay property taxes on their buildings and land and on much of their personal property, while individuals don’t pay property taxes on their personal property.
Casting real marketplace developments as a sinister plot by business interests to shift their property tax responsibilities to residential homeowners is both wrong and counterproductive. Increasing business property taxes will not help either Wisconsin families or companies. The problem isn’t that we tax too little property in Wisconsin, it’s that we spend and tax too much relative to our taxpayers’ ability to pay – whether that taxpayer is an individual named Harry or a company named Harley. A push for more property taxes in any sector isn’t the answer to Wisconsin’s high tax problem.
— Chandler is a public policy and government relations consultant in Madison who does work for the Wisconsin Realtors Association. He is a former state revenue secretary and state budget director.
