Rethinking State Revenue at Recession Time

Workers
Serving
Milwaukee

The State of the State: Rethinking Revenue at Recession Time
(12/22/08)

        There’s no overstating it: Nov. 4 was a great day for working families in this country and this state. There’s also no overstating this: We’re in a serious economic crisis. Witness what state of Wisconsin officials are waking up to as they enter 2009-11 state budget season.

    “There’s a $5.5 billion deficit,” says AFSCME Lobbyist Susan McMurray. “And that $5.5 billion is just based on agency department requests. There’s more that will need to be allocated."

    The good news? Our friends in high legislative places got there because they get it, because they know we need better solutions to all that ails us, and they’re open to ideas. They’re listening.

    Generating revenue during a time of recession will be no mean feat for states, counties and municipalities nationwide next year. Wisconsin included. But something’s got to be done about that deficit. And budget cuts alone aren’t the answer.

    “It’s time to set the stage for figuring out how to increase revenue as a way to get Wisconsin out of the quagmire we’re in,” McMurray says. “We have to get away from thinking we can cut our way out of this.”

    Enter the “Catalog of Tax Reform Options for Wisconsin.”Issued in November by the IWF and the Wisconsin Council on Children and Families, the catalog examines an array of ways to boost revenue — from coming up with more effective ways to collect taxes that are owed but not paid ... to closing loopholes that allow certain entities to manipulate the system ... to, yes, raising certain taxes.

    The catalog breaks the information down by tax type (sales, individual income, business, transportation, miscellaneous) in an easy-to-read format. For example, under the “sales tax” reform options, the authors suggest that we could adopt the Streamlined Sales Tax Agreement, enabling Wisconsin to join 22 other states in a national project to collect sales tax revenue on purchases from the Internet and other mail order firms, providing an annual “fiscal effect” of $31 million. And if Congress should allow states to require out-of-state retailers to collect taxes on Internet sales, that total could jump to $200 million-plus.

    A ‘balanced approach’ suggested. The sales tax also could be extended to a range of services, including personal (beauty salons/barbers, which would net $90 million), property (real estate brokers’ commissions, interior design, repair, which would net $143 million), business (computer services/technical consulting/non-medical professional etc., netting $231 million) as well as advertising ($70 million).

    Under the “business tax” options, the authors’ suggestions include adopting combined reporting, which would require corporations/subsidiaries to file a combined report of the income of all affiliated corporations in a group, eliminating “much tax avoidance” and netting $75 million or more annually, “perhaps up to several hundred million dollars”; implementing the oil company gross receipts tax, which Gov. Doyle suggested the last budget go-round ($158 million was projected); and replacing the corporate income tax with a gross receipts tax.

    The amount of additional revenue would depend on the rate chosen, as well as on the credits or exemptions provided. An exemption of $500,000 and a rate of 0.15 percent would generate about $1.03 billion in 2010.

    “There is no specific item in this catalog that is being endorsed by itself,” reads the Catalog’s Introduction. “However, a subset of the revenue options is necessary for a balanced approach to addressing the deficit while preserving vital public services and infrastructure.”

    Start talking. More and more organizations that care about this state’s future heartily agree.

    “People are starting to talk about this to legislators,” says McMurray, citing AFSCME among the dialogue-starters. “Revenue is a big thing right now. Maybe the Catalog came about at the absolute perfect time.”

    To view the Catalog in its entirely, check out IWF's Web site.