Progressive Thinking

Sen. Kathleen Vinehout writes about a public hearing before a committee, of which she is a member, on a bill to eliminate the personal property tax. What will be the financial impact of the proposed change, who pays more, and what goods and services do we do without?

ALMA, WI - “Taxes are what we pay for a civilized society,” Supreme Court Justice Oliver Wendell Holmes said ninety years ago.

Taxes pay for much of the goods and services we take for granted, such as roads, fire and police protection, consumer protections, schools, parks, and our social safety net. Taxes make up the largest part of the revenue in our state budget.

Taxes are a part of our daily lives, through the money we pay in sales tax or a deduction in our paycheck for income tax. Once a year, property owners send in a check to their local government for property taxes on their homes and farms.

Property tax is probably the most unpopular tax. A subset of this tax, the personal property tax, came under fire at the recent Senate committee hearing.

“When the tax bill came, I always viewed this tax as a penalty.” Quentin Schultz of River Falls told our committee. He joined dozens of business owners who traveled to Madison with hopes of getting rid of the personal property tax.

About three percent of the property tax paid is for things that are not land or buildings. Our committee heard from a diverse group of businesses who asked for things such as the equipment to bake bread or their ski lifts at a ski resort to not be taxed.

Over the years, business groups advocated for loopholes or “exemptions” to the personal property tax. In a January 2017 paper, the nonpartisan Legislative Fiscal Bureau (LFB) listed 18 pages of “exemptions” to the personal property tax. The list includes many common items from A to Y: from animals to youth hockey.

Business owners at the committee hearing gave many examples of how difficult it was for them to know what was and was not taxed, and how expensive the tax was for them to keep records. Many complained the tax on them was unfair, calling it a “bad” tax.

But is there ever a “good” tax?

To answer this question, I turned to the teachings of many economists I learned from over the years. Recognizing that all taxes have negative effects, a “good” tax is broad-based - it affects everybody. It has a low rate and does not have loopholes. When a tax is broad-based and has a low rate, everyone pays something but no one pays too much.

A “good” tax is easy for taxpayers to comply with and easy to collect. Finally, a “good” tax causes little change in normal economic activity. The personal property tax fails this standard on many levels.

Lawmakers following the wisdom of “good” tax policy would choose a reform that gets us closer to these standards. To be revenue neutral, any lowering of the state’s revenue should be made up somewhere else.

The “somewhere else” or how the lost revenue would be made up was never discussed in the committee hearing. The cost of this personal property tax change would be about $520 million. For comparison, that is about that same amount the Governor put in his budget as a “per student” increase for all public schools.

Lawmakers who support eliminating the personal property tax said they planned to add state money to offset the loss to local community. They also said, without that additional state money, homeowners would pay higher property taxes. Some communities would see a much higher increase in property taxes. For example, the City of Blair in Trempealeau County receives 22% of its property tax revenue from personal property taxes.

The proponents of the bill suggested the money lost to communities like Blair would be made up in more state aid. However, no one could answer my question of where this money would come from.

I applaud my colleagues who want to get rid of a “bad” tax. However, we must have an honest discussion about how we are going to pay for local services upon which people depend.

History shows us that local government bears a heavy burden to make up for cuts in state funding. Eliminating the personal property tax increases that burden. If promises to make up for the loss of revenue are not met, it will affect local programs and local taxes.

If we are going to eliminate “bad” taxes, we must consider the consequences and discuss either who pays more or what goods and services we want to do without.

The most recent LAB report again points out that WEDC does not collect the information necessary to report on the jobs promised when taxpayer dollars are used. Is our money effectively and efficiently invested?

MADISON – Our state spends a great deal of money on economic development. The Wisconsin Economic Development Corporation (WEDC) is responsible for overseeing much of the taxpayer money that goes to job creation.

A recently released audit by the nonpartisan Legislative Audit Bureau (LAB) found that “WEDC cannot be certain about the number of jobs actually created or retained as a result of any awards that ended.”

By law, WEDC is required to report jobs created or retained. The agency meets the requirement through reports posted on its website. However, auditors found these data inaccurate.

“We found that the on-line data in January of 2017 included 183 jobs created and 1,082 jobs retained by recipients that had sold their operations in Wisconsin, ceased their operations in Wisconsin, or had withdrawn from their contracts before the contractually specified completion dates.

For example, WEDC claimed credit for retaining 340 jobs for a company that ceased operations in Wisconsin; claimed credit for creating 68 jobs for another company that sold its operations in Wisconsin; and claimed 485 jobs retained for a third company that withdrew from its contract years before it was to deliver the created and retained jobs.

In addition, auditors found WEDC double counted jobs created and retained. For example, one company received awards in both June 2012 and September 2012 for the same 305 jobs created and 284 jobs retained. Another company signed two different contracts in July of 2011 but the company claimed they would retain the same 110 jobs for both awards.

Auditors also looked at 192 contract awards made since July 2011 through the end of September 2016. Presumably, at the end of a contract one would know if the promised results were achieved. Upon review of the 192 awards, LAB found only 12.5% (24) even had an expected result of job creation or retention.

Of those 24 with expected results, three of the contracts did not actually require the company to create or retain jobs; 13 contracts ended before their completion date (meaning the requirements were not fulfilled). Of the eight contracts completed, WEDC did not collect sufficient information to verify that promised jobs were created.

Without accurate information about WEDC program results, lawmakers and taxpayers cannot know if the investment in job creation and retention was money well spent.

WEDC authorized hundreds of millions in tax credits, grants and loans since its 2011 inception. The most recent audit is the third report that raises ongoing concerns about the lack of independent verification of jobs created or retained.

Some WEDC problems were corrected, such as establishing accounting policies and procedures for the agency (the lack of which was a finding in 2013). But other problems identified in prior audits continue. For example, in 2015 auditors found WEDC kept a reserve of state money larger than necessary. In the most recent audit, auditors found WEDC’s cash and investment reserves more than doubled over four years.

Prior problems with administering its loan program caused legislators to phase out any further loan activity by WEDC. In this most recent audit, the potentially uncollectable loan balance nearly tripled and auditors found a substantial rise in the loan delinquency rate.

Just days before the release of the audit, the Legislature’s budget writing committee voted, along partisan lines, to restart WEDC’s troubled loan program. The committee also voted along partisan lines to increase state taxpayer dollars going to WEDC.

Both of these actions should be stopped.

For nearly six years, Wisconsinites asked whether WEDC lived up to the promises made at its inception. The Legislative Audit Bureau continues to tell us that WEDC does not collect adequate information to provide lawmakers and citizens with accurate information on whether promises of job creation and retention were delivered

Most of WEDC’s money is state taxpayer dollars, a precious resource that is used to fund many other programs. A dollar spent on unverified job creation/retention programs means a dollar is not available for critical investments like transportation infrastructure, public schools or local government.

It is time for all of us to demand that the Governor and the WEDC Board step up and correct the ongoing problems documented in three separate audits of WEDC over the last six years. Job creation is important, but so is the most effective and efficient investment of state taxpayer dollars.

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The audit briefing sheet and full audit can be viewed online.

Big business tax credits mean fewer budget dollars for shared services such as police and fire protection, public education, and transportation infrastructure says Sen. Kathleen Vinehout. It's not fair for small businesses and the rest of us to shoulder the cost on our own.

MADISON - “Can anything be done to force the largest corporations in the state to pay something for the roads, ports, airports, fire and police services, educated workforce, etc. that they are using in our state?” Linea recently wrote to me. “This implies the smaller businesses are paying far more than their fair share.”

About the time Linea’s question came to me, so did a new memo from the Legislative Fiscal Bureau (LFB) examining the drop in money coming to the state from corporations.

I wondered, just how have business tax credits changed and how might they change in the new budget?

Some of the items Linea mentioned are part of the transportation budget. For this column, I will set aside a discussion of road-related taxes.

Much of state government is paid through our state taxes: including corporate and individual income tax, and sales tax.

The LFB recently addressed tax money coming into the state – “revenue estimates” – for the coming budget. The nonpartisan bureau stated, “Corporate collections for the entire year are estimated to decline by 6.5%, compared to 2015-16, while the year-to-date decrease is 8.9%.”

Over the past year, monthly corporate tax collections, when compared to the same month in the prior year, were down by as much as 22%.

What is causing this rapid decline in corporate tax collections? The answer from analysists included the fact corporations were cashing in tax credits faster than expected.

Tax credits can reduce taxes owed. Business tax credits have grown both in the different types of credits and the total amount of state taxes reduced.

Wisconsin has a lot of new business tax credits.

In 2006, the state had 17 different types of business tax credits. Ten years later, the type of tax credits increased two and one-half times. The cost to the state for these credits nearly tripled. These numbers are from a report produced by the state Department of Revenue called Tax Exemption Devices.

Just one tax credit set the manufacturing and agriculture tax rate to less than half a percent, which cost $650 million in the next budget. (For comparison, this dollar amount is about the cost of State Superintendent Evers’ plan to fix the school funding formula.)

Some credits are more powerful than simply making income tax owed disappear. Some business tax credits are refundable. Claiming a refundable tax credit means you get money back from the state even if you owe nothing in taxes.

One refundable tax credit, known as Enterprise Zone, accumulated awards of over $470 million that can be claimed by companies over several years. A few of the companies benefiting and their awards include: Mercury Marine ($65 million), Kohler ($62.5 million), Quad Graphics ($61.7 million), Uline ($18.6 million), Amazon.com ($10.3 million) Dollar General and Trane (both at $5.5 million).

The stated purpose of all this money given to corporations is to spur economic growth. Of course, the expected robust economic growth has not happened. Wisconsin lost 66,000 manufacturing jobs in 2007 and 2008. In 8 years, we only gained back 44,000 of those jobs. Wisconsin wages are 18th lowest; and we are 23rd in real GDP growth, behind every Midwest neighbor except Illinois. The new revenue in this budget is about the same increase as the past few budgets.

Rather than repeal, or at least demand more accountability for these expensive tax credits, many in the legislature talk about shifting more of the tax burden away from corporations.

A bill introduced last month would eliminate the business personal property taxes and shift the cost of this tax to the general fund, which puts funding for schools, universities, and local governments at risk. Further, rumors in the Capitol suggest this tax plan will be part of a last-minute budget amendment that could cost the state a whopping $530 million. That’s a little more than the price tag of the new money the Governor set aside for K-12 education in “categorical” or “outside” the funding formula.

Lawmakers should take up Linea’s question about big businesses paying their fair share. It’s simply not fair for small businesses and the rest of us to shoulder the cost of shared services like police protection, the UW and public schools when corporations also shared the benefits.

The REINS Act (SB 15) allows the Senate Majority Leader, Assembly Speaker, or Chairs of the administrative rules committee to stop development of administrative rules if the cost to implement the rule is over $10 million, regardless of the benefit to the public.

MADISON - “This is the broadest, most dangerous bill you’ve never heard of.” I told my colleagues during a recent Senate debate. “It’s an obscure way to shut down government from doing something that the Legislature intended to do.”

Senate Bill 15, known by the initials REINS, would allow leaders of the Legislature to shut down the implementation of new laws if the leader found the new law too costly to implement. A version of the bill is moving toward passage at both the state and federal levels of government. I expect the state Assembly will soon take up the bill.

A little background; after a bill becomes law, agencies work on writing the details of how to implement the law. These details, known as Administrative Rules, are vetted by the Legislature through a committee and vetted by the public through hearings.

“Administrative Rules are the fine details of laws written by policy experts at state agencies.” said long-time Capitol reporter Shawn Johnson in an NPR story on the Senate passage of the REINS Act.

In 2011, majority members voted to change the rulemaking process to give the governor exceptional authority. Under what became known as “Act 21” the rulemaking process now begins and ends in the governor’s office.

Chief sponsor of the REINS Act argued the bill “shifts the power back to us, the elected officials.” Curiously, the bill did not change the portion of the process that begins and ends with the governor.

What the bill did do is allow leaders – the Senate Majority Leader, Assembly Speaker, or Chairs of the administrative rules committee – to stop the implementation of a law if their own commissioned study shows the total cost of implementing the new law is over $10 million.

However, the study would only evaluate the costs of the new law, not the benefits. Therefore, the bill only considers one side of the equation – the costs to business not the benefits to the public.

Consider this hypothetical example: a manufacturing process caused the death of thirty people. Implementation of a rule to change the manufacturing process statewide would cost over $10 million. The value of the business costs would be weighed but not the value of human lives saved because of protections put in place by the rule.

The cynical observer of the political process might say the REINS Act allows a legislator to vote for a new law that has broad public support, but after action by a few legislative leaders, satisfy a select group by never implementing the new law.

The REINS Act would affect every portion of state government, but there are five agencies that write the majority of Administrative Rules: Agriculture, Trade and Consumer Protection; Natural Resources; Transportation; Economic Development Authority (formerly Commerce) and Workforce Development (Labor).

Given what these agencies do, the effect of the REINS law could be wide reaching. New laws that could be stopped might be related to consumer protections; human, animal and plant health; workers compensation, unemployment and discrimination protections; road and bridge construction; food, water and air pollution. Even clawing back state money from companies that refused to deliver promised jobs.

The groups supporting the REINS Act reads like a “Who’s Who” among factions trying to influence the Republican Party: Wisconsin Manufacturers and Commerce, various utility companies, American Petroleum Institute, the Koch brothers-backed Americans for Prosperity, to name but a few.

According to the Center for Media and Democracy, the American Legislative Exchange Council (ALEC) a corporate lobbying-sponsored group supports the bill. Some Wisconsin legislators are among ALEC leadership and members.

In Washington, a similar REINS Act is moving through Congress. The Act was passed by the House of Representatives and is under consideration in the U.S Senate.

In a letter to Congress, the nonpartisan League of Women Voters wrote, “If you think you might ever protect your constituents from dirty air or water, drinking water contamination, disease spread by food, lead in toys, predatory banking practices or any known or yet unforeseen threat, you need to vote against the REINS Act. The Act would simply be the most fundamental step away from protecting the public in U.S. history.”

The REINS Act is promoted as a cleverly devised pun to rein-in run-away government. However, in reality, it is a way for large corporate interests to manipulate our political process to their own ends, sacrificing our people’s health and safety.

Trempealeau County Youth in Government Day brings students into the courthouse to visit with officials and staff about their work. It gave Kathleen Vinehout a chance to spent time with them discussing her role as Senator and engage in a conversation about what they would change if they had the opportunity.

WHITEHALL, WI - “Imagine you could make the laws. What would you change about how things are run?” My question to the students spurred a long discussion about change in our world.

Almost 100 high school students recently participated in Trempealeau County Youth in Government Day. The daylong session was designed to encourage youth to become engaged in government. Students visited with county officials and staff about their work running county services.

During lunch, I spoke with the students about being a Senator and lawmaking. I encouraged them to think about laws as something they could someday change.

Teens told me they often think of the law as permanent. The day at the courthouse taught them things can change. They can be a part of change. The teens offered ideas that reflected their interests and experiences. Some focused on immediate concerns, “Get rid of the school dress code,” said Isabelle. Some had a larger vision.

“I want to save the horses sent across the Mexican border for meat,” said Raquel. We talked about the work of horse rescue groups who give time and money to help abandoned horses.

“We need to protect the environment. If we protect our environment, we protect human health and animal habitat,” one young woman explained.

“Fewer people are going into agriculture. Let’s offer free tuition to encourage more agriculture students and farmers.” Several students voiced agreement. “Everyone needs to eat – we need more farmers.” “Look at the average age of farmers in Wisconsin,” said another.

“We need cheaper college tuition,” said one young man. Others agreed. “Look what they did in New York – they made college free.” Another student noted, “Even in Kurdistan they have free college tuition.” I’m not sure about Kurdistan, but there are countries do not charge students tuition.

“We need to give everyone equal opportunity,” said Kayla, whose broad vision spurred others to think of ways to provide opportunity to all of our neighbors.

Shelly talked of helping homeless children. “Give them a home, lower the cost of adoption,” she said. We talked about the county’s role in helping children whose parents could not take care of them. Several students mentioned their visit with county social workers who spoke about children in need.

“I’d like to help people without health care,” said Monica who wants to become a Certified Nursing Assistant. She also saw the larger problems that happen when people cannot get needed health care.

I prodded the students for more ideas of how we could provide opportunity for all. One teen with beautiful blue and black hair framing her face, said people “should not be discriminated against for the color of their hair.” Her comment led to a discussion of discrimination in many forms. We talked about race, religion, national origin and immigration status.

The student’s vision of changing how things are run was not limited to the county, or even the state. “I think we need to explore space,” said Riley. “Let’s explore Mars.”

“Kids in other countries are dying of diseases and do not have a home,” said one young woman.

“Stop corrupt governments,” said Manny. He added corrupt people who are not committed to serving the public can run other countries and, even our own country.

His comment prompted a discussion about laws to assure good government. We talked about transparency in state and local government. Posting public notices in the newspaper for example helps people see actions local officials plan to take. Transparency gives everyone a chance to participate in what happens in our communities and state.

“Showing up is the first step to changing the world,” I told the youth. The decision makers in this world first show up at a school board, county board or town board meeting.

“Next, let your voice be heard,” I urged. Write, email, speak out, and call your representatives. I asked the youth to think about how to make their voice louder. They talked about joining groups, gathering petitions and working for change together.

Spending the day with the Trempealeau County teens reassured me youth of today are engaged and considering world problems they will soon inherit. I’m grateful to County Clerk Paul Severson, the American Legion, teachers and county officials who worked hard to give students a glimpse into how they could participate in government and someday even change the world.