Steven Walters: Walker kick-starts talk of ending state’s income tax

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Steven Walters
Monday, December 30, 2013

Republican Gov. Scott Walker says he learned this lesson from the 2011 fight he picked that limited collective bargaining by public employees: First, publicly explain the changes you want to make and why they are needed. Lay that groundwork before you try to push anything through the Legislature.

In his book, “Unintimidated,” and repeatedly, Walker has said in 2011 he acted first and then made his case for the changes. He said that lesson was underscored when even his wife, Tonette, asked him why he was pushing to all but eliminate collective bargaining.

This time, Walker says in year-end interviews, he wants a year of discussion before what could be his next “bold” move, if he is re-elected in November and gets to prepare a 2015-17 state budget: Eliminating the personal income tax, which brings in $7.5 billion a year.

“What would have the biggest impact on the economy?” Walker said in a WisconsinEye interview. “If you look at the top states across the country, in terms of job growth, consistently they are states that have no income tax, or very low income tax.

 “There’s a certain amount of appeal to me of just saying, ‘Hey, if they’re doing that, it may not be the only reason, but it’s got to be a major catalyst.’”

Walker also said he is willing to discuss eliminating, or significantly reducing, the property tax that is one of the highest in the nation.

But that’s a much more difficult task because local governments levy about $10.5 billion a year in property taxes. Credits lower the amount of taxes actually paid by property owners to about $9.5 billion.

Last year, the personal income tax brought in more than half of all general-fund taxes. The general fund is state government’s main checking account; it does not include transportation spending and other specific accounts.

But the general fund pays for or subsidizes K-12 schools, local governments, Medicaid, prisons, the UW System other state agencies and tax breaks.

Walker’s goal of wanting to see plans to eliminate a tax that brings in $7.5 billion a year not only introduces a major issue in next year’s race for governor but prompts many other questions.

-- Would the sales tax go up to eliminate the property tax?

Wisconsin’s 5 percent state sales tax brought in $4.4 billion last year, so a 1 percent increase would generate at least $880 million more per year. Wisconsin’s sales tax rate has not risen since 1982.

Wisconsin has the lowest state sales tax in the region: Minnesota’s is 6.875 percent; Illinois’ 6.25 percent, and Michigan’s and Iowa’s 6 percent. These rates do not include sales taxes added by local governments; in Illinois, they can drive the total sales tax to 9.75 percent.

In a Dec. 19 statement, the Wisconsin Budget Project, a subsidiary of the Wisconsin Council on Children and Families, estimated that Wisconsin’s 5 percent sales tax would jump to 13.5 percent, if the sales tax was increased to offset the entire income tax.

“Simply swapping out the income tax for the sales tax would mean a tax hike for the vast majority of Wisconsinites without doing anything to boost our economy,” Budget Project Director Jon Peacock said.

-- Would some sales-tax exemptions end to eliminate the property tax?

In a February report, the state Department of Revenue estimated the annual cost of dozens of sales tax exemptions, including: motor fuels, $595.9 million; food, $536.9 million; sales to state and local governments and schools, $368.8 million; computer services, $176.4 million; religious, charitable, scientific and educational organizations, $149.5 million; and drugs and medicine, $143.6 million.

Every exemption has its advocates, so trying to eliminate any of them would be unpopular.

-- How fair—or progressive—is Wisconsin’s income tax now? Who would be most helped if it were eliminated?

That’s the subject of another column, but here’s one interesting statistic: 31 percent of tax filers owed no income taxes in 2012 but filed to claim the Earned Income Tax Credit or some other tax break. So, 69 percent of all tax filers paid all personal income taxes that year.

Some experts question Walker’s goal.

“My starting assumption is that it will be impossible to replace the $7.5 billion of revenue,” said Andrew Reschovsky, an economics professor at UW-Madison’s LaFollette School of Public Affairs.

Steven Walters is a senior producer for the nonprofit public affairs channel WisconsinEye. Email stevenscwalters@gmail.com.

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