It’s time for Wisconsin to rethink the runaway tax break that allows manufacturers and other businesses to pay next to nothing in income taxes. Gov. Tony Evers wants to rein in this wasteful tax break and redirect the benefits to the middle class, but Republican lawmakers are fighting tooth and nail to keep the loophole.
The Manufacturing and Agriculture Credit, which lawmakers passed in 2011, nearly eliminates income taxes for manufacturers and agricultural producers—at a very steep price. This tax loophole has cost an estimated $1.4 billion in lost tax revenues so far, reducing the resources available for investing in Wisconsin’s families, schools, and communities.
Indeed, the Wisconsin Budget Project, the nonprofit organization for which I work, calculated that tax break is costing nearly double the amount originally estimated.
All Wisconsin businesses depend on public investments in roads, workforces and communities to thrive. But this loophole gives manufacturers a special exemption from paying their fair share. That means that companies like Foxconn and Kimberly-Clark pay little or nothing in income taxes even before the state piles on the subsidies. In fact, an investigation by One Wisconsin Now showed that, in the four years between 2013 and 2016, Kimberly-Clark paid a grand total of $1 in state income taxes.
Businesses don’t need to create new jobs to receive this tax break. Even manufacturers that lay off workers, send jobs overseas, and close factories can receive the credit. There is no evidence that this tax break has any effect on employment.
Only about three out of every 1,000 tax filers get this tax break, but those that do get an average tax cut of about $23,000. Some multi-millionaires get seven-figure tax breaks, with no requirement that they expand their business or hire additional workers.
Evers wants to limit this costly, ineffective loophole and redirect the resources to put more money into the pockets of the middle class and working parents with low incomes. His proposal would allow manufacturers to use only the first $300,000 of income to claim the credit. More than $9 out of every $10 in revenue gained through capping the manufacturing credit would come from millionaires.
The manufacturing credit contributes to economic inequity by increasing the concentration of income and wealth in a few hands—hands that are most likely to be white, due to a long history of racial discrimination. Thanks to powerful interests that have rigged the tax code to their advantage, Wisconsin residents with the highest incomes pay a much smaller share of their income in state and local taxes on average than other taxpayers.
State tax policies can be a powerful tool for expanding opportunity. But right now, Wisconsin’s tax system lets the richest residents pay less than their fair share, and requires everyone else to pick up the tab.
Cutting back on the manufacturing credit, as Evers has proposed, would move us closer to having a tax system that provides a level playing field for Wisconsin families and businesses.