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Tax shift would hurt Wisconsin economy

Gov. Scott Walker has begun tax reform talks across the state. These meetings are by invitation only, closed to the public and the press. Closed meetings fit an agenda to shift more of the tax burden from wealthy to low- and median-income families by moving from income to sales taxes. There is little evidence this would improve the economy. Meanwhile local schools, road repairs, and health and safety services continue to be short-changed.

Repealing the income tax would be a boon to high-income individuals but damaging to low- and moderate-income families that pay more sales and property taxes as a share of their income than the wealthy. The state’s ability to maintain public services and programs essential to economic growth would be in jeopardy, according to the Center on Budget and Policy Priorities.

According to Wisconsin Taxpayers Alliance President Todd Berry, Wisconsin sales tax would have to go up to 12 or 13 percent to make up for the loss of revenue from repealing the income tax. Other options to raise revenue could include new taxes on food, prescription drugs, utilities, services or increases in gas taxes, vehicle registration and other license fees. Increasing the sales tax would also hurt local businesses. If Wisconsin sales tax is raised, people are likely to spend less in town and purchase more in neighboring states or on the internet.

The Center on Budget and Policy Priorities found major personal income tax cuts in the 2000s, before the recession hit, were as likely to lose economic ground as to gain it. The three states that grew quickly were major oil-producing states that benefitted from a sharp rise in oil prices. Of the eight major studies published in academic journals since 2000 that examined the economic effect of state personal income tax levels, six found no significant effects and one was inconclusive. What matters most to economic growth are “trends in the national and international economy, a state’s natural resources, the education of its workforce, the proximity to major markets and the mix of industries in a state.”

The state of Minnesota provides an interesting comparison to Wisconsin due to its proximity and similar size of population and geography. Minnesota raised its top personal income tax rate to 9.85 percent. Wisconsin’s is 7.65 percent, and yet Minnesota’s economic growth rate is almost twice that of Wisconsin. Additionally, Minnesota is ranked eighth and Wisconsin 41st by Forbes in Best States for Business.

Why the huge difference? Minnesota and Wisconsin have similar ranks in business costs, regulatory environment and quality of life, but differ significantly in labor supply rank — Minnesota is 18th and Wisconsin 39th. Labor supply measures college and high school attainment among other factors. Wisconsin’s cuts to education since the start of the recession are the seventh largest in the country. Large cuts in education spending leads to job losses and slow the economy’s recovery from the recession, according to the Center on Budget and Policy Priorities.

As tax reform is being deliberated, we need to keep in mind factors that affect the economy that we can influence supporting public education, maintaining our natural resources, and encouraging a wide mix of industries. Those that have promise for expansion include internet technologies and commerce, data crunching and market research, robotics, 3D printing, alternative energies, biotechnology and biomedicine, nanotechnology, environmental and conservation science, finance, health care, counseling and therapy, and entrepreneurship.