On Feb. 11, Lt. Gov. Rebecca Kleefisch led a tax reform roundtable discussion in Madison. This discussion was not related to the tax reductions proposed in Gov. Scott Walker's most recent State of the State address, which would take place immediately to distribute most of the projected 2013-2015 state budget surplus back to taxpayers. The roundtable addressed long-term tax changes for Wisconsin, and any reform proposals would not be implemented before the 2015-2017 biennial budget.
The purpose of the roundtable discussion was to gather input from the public on how best to reform Wisconsin's tax policy. The event was attended by Madison Mayor Paul Soglin; representatives from the farm, manufacturing, construction, real estate and tourism industries; and veterans and small business groups. Eight other roundtable discussions had previously been held in other parts of Wisconsin, with at least four more sessions planned. In April, officials are expected to begin processing input from the roundtable discussions and developing a tax reform proposal that supports the Walker administration's top goal of creating jobs.
The lieutenant governor said there have been two main themes from the roundtable discussions. One is that Wisconsin's taxes are too high; the other is that the state's taxes are too complex.
Wisconsin currently has the 10th-highest property taxes and the 12th-highest income taxes in the nation. In contrast, Wisconsin's sales taxes and fees are 35th and 30th highest, respectively.
In spite of the relatively high income and property tax burdens, more roundtable participants in Madison expressed concern about the complexity rather than the level of their taxes. Two small business owners said they pay more than $12,000 each year to have their taxes prepared. They also said the tax laws are so complicated that they must outsource tax accounting and compliance to an expert rather than undertake these tasks themselves.
Some representatives did have specific tax issues they wanted to see addressed in any tax reform proposal. Farm groups from four counties (Dodge, Columbia, Rock and Dane) all emphasized the importance of maintaining use-value assessments of farmland. Under this approach, the taxable value of land is based on the value of using that land for agriculture, rather than the higher commercial values that would be assessed if the land were sold to a developer. The farm representatives said use-value assessments are necessary for land to continue being used for agricultural purposes. If assessments were increased to reflect commercial market values for agricultural land, they said farming the land would no longer be cost effective, and it would have to be sold.
User fees received relatively little attention in the discussion, although they are a potential component of reform proposals. One significant change in user fees would be to introduce toll roads in Wisconsin. In a conversation prior to the event, the lieutenant governor told me that taxing Illinois drivers when they enter the state could be a significant source of new revenue, although Wisconsin has been prevented from having toll roads since the 1950s under its agreement with the federal government for the Interstate Highway Act. Introducing toll roads would require a change in this agreement.
In terms of the overall direction for reform, the group unanimously favored lowering property and income tax rates rather than granting targeted tax credits. It also unanimously agreed that the current tax code is too complicated. Several people said greater tax certainty and predictability would enhance business planning and promote job growth.
Some groups that did not attend the Madison roundtable have criticized any reform proposal that offsets property or income tax reductions with increases in sales taxes. For example, the Wisconsin Budget Project has claimed that if Wisconsin's income tax is eliminated, the sales tax would have to increase from 5% to 13.5% to compensate for the lost tax revenues. It argues that this shift in the tax burden would be regressive and disadvantage the poor. The lieutenant governor said this concern has not been raised in the roundtable discussions to date, partly because Wisconsin's sales tax rate is well below the national average, while its property and income taxes are relatively high.
However, in 2013, tax reform proposals failed to progress in Louisiana, Nebraska and North Carolina because of opposition to shifting the tax burden toward the sales tax. Business groups argue that these concerns are shortsighted because they ignore the increased job and economic growth that would result from income and property tax relief. Kleefisch said her staff has been examining the tax reform experience in other states, but the basis for any tax reform proposal in Wisconsin will be the input received from Wisconsin residents.
Although it's not a panacea, getting the tax code right can play a significant role in fostering economic growth and development in the state. All Wisconsin citizens are encouraged, to provide their thoughts on how best to implement tax reform at www.taxreform.wi.gov.
Larry Kaufmann is an economic consultant based in Madison.