Cut taxes and spur job growth; that's Gov. Scott Walker's plan. But will it work?
The governor has handed five major tax proposals to the state Legislature — three of them specifically aimed at helping create 250,000 jobs by 2014.
The bills, scheduled to reach legislative committees Tuesday, would provide a sizable tax credit for small businesses grossing under $500,000, increase by $25 million the amount state officials can use to promote economic development and forgive taxes for two years on businesses that relocate to Wisconsin.
But state economic experts, as well as some legislators, question whether Walker's proposals would actually provide the spark needed to jump-start the state's economy.
"If you have a young business that is cash strapped, you need to help it increase its cash flow," said Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance. "They need breaks on payroll taxes or property taxes. But with what I have seen of (Walker's) proposals, there is not a lot of prospect for growth there."
Walker has issued eight bills for the special session, which he called to address the state's economic problems. Wisconsin faces a $3.3 billion budget shortfall and has lost about 180,000 jobs in recent years.
Walker's proposals focus mainly on regulatory reform and taxes, two areas where the governor and the Republican-led Legislature say Wisconsin needs to improve to attract businesses.
"Taxes are clearly part of the business climate problem in this state and that needs to be addressed," said James Buchen vice president of Wisconsin Manufacturers and Commerce. "This is a good first step, but much more needs to be done."
Buchen said the state's overall tax burden is too high. He would like to see the Legislature lower the top income tax rate (7.75 percent) and the corporate tax rate (7.9 percent). Wisconsin's rates are not as high as Minnesota (7.85 and 9.8 percent respectively), but they are more costly than Virginia (5.75 and 6 percent).
"That really is a factor in keeping businesses from wanting to move here," he said.
This year Forbes ranked Wisconsin 43rd of 50 states for business climate. While the state made the top ten for quality of life, it scored poorly in business cost. The state fared slightly better in the recent CNBC rankings of America's Top States for Business, reaching 29th.
Impact 'likely to be very small'
UW-Madison economist Andy Reschovsky said that while tax breaks can generally make a difference in job creation, it's usually a small difference.
"Job growth is decided by a whole set of variables, including cost of labor and (the national) economy," he said. "The impact of such tax cuts is likely to be very small."
According to numbers recently provided to the Associated Press, Walker's tax cuts would increase the state's deficit by about $80 million a year. The governor has said that he will make up for that with spending cuts. Reschovsky said that if those cuts result in state layoffs, the net result of Walker's tax cuts could actually be job loss.
For this reason, state Rep. Jennifer Shilling, D-La Crosse, said any tax cuts approved by the Legislature need to be "performance based."
"We need to know that we would be getting something for the money we spend," she said.
Assembly Speaker Jeff Fitzgerald, R-Horicon, said the tax bills will be under debate the next few weeks and they will likely be tweaked before the Legislature votes on them. He said he has already talked with Walker about changes to the small-business credit.
Fitzgerald said Walker's bill is too narrowly defined and he would like to see it changed to offer tax deductions tied to small businesses that add positions, rather than focusing on gross receipts. That, he said, would also improve accountability.
"But this session is not about one bill," he said. "We have to change the business climate in the state. This is just the beginning of that process."