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Last month, Wisconsin Governor Scott Walker introduced his budget plan to help balance Wisconsin’s books for the remainder of the current fiscal year. The most controversial piece of the budget repair bill calls for a reduction in benefits for public employees and the end of their collective bargaining rights.
However, the Wisconsin Budget Project reminds us that public employees in Wisconsin actually aren’t overcompensated for their work. The New York Times opines, “Like many governors, he wants to cut the benefits of state workers. But he also decided a budget crisis was a good time to advance an ideological goal dear to his fellow Republicans: eliminating most collective bargaining rights for public employees.”
It’s worth noting that shortly after taking office, Governor Walker pushed through his own tax cuts, which will cost the state $117 million in the next biennium. This begs the question: If the Governor was really serious about balancing the state’s books, why is he passing more tax cuts that will need to be paid for in the future? Governor Walker would likely say that passing these tax cuts are proof that he is fulfilling his campaign promise that “Wisconsin is open for business.” But we know that companies look for more than lower tax rates or special tax credits when deciding where to locate.
The debate about the budget repair bill rages on. Democratic Senators remain outside the state to prevent a quorum, and protestors are gathering in Madison every day. With the unveiling of Governor Walker’s biennial budget Tuesday night, the debate is only going to heat up. The Governor’s budget includes no fee or tax increases and reduces aid to local governments by over a billion dollars. In fact, overall spending is reduced by $4.2 billion under the Governor’s plan.
The Governor’s proposed budget creates distinct winners and losers. In terms of tax policy, low-income folks are likely to be hit the hardest by this budget, but certain Wisconsin investors will come out ahead.
For example, the Governor proposes to also eliminate indexing of the state’s homestead credit, which offers property tax relief specifically targeted to low-income Wisconsinites. Despite the Earned Income Tax Credit’s impressive track record of lifting people from poverty, the proposed budget will reduce the percentage of the federal credit that Wisconsin currently allows.
On the other hand, Wisconsin allows one of the most generous capital gains tax breaks, and the Governor is proposing to add a 100 percent capital gains exclusion for investors who invest in Wisconsin businesses and keep those investments for at least five years.
The Governor is not making draconian cuts and moving against collective bargaining because it’s necessary to balance the budget. He’s making choices that reflect the priorities of businesses and anti-government activists. He could make other choices.
For example, instead of creating a new giveaway for investors, he could move in the opposite direction by reducing or eliminating the state’s existing break for capital gains. Wisconsin is just one of eight states that offer special treatment for capital gains income. ITEP estimates that eliminating this regressive and costly exclusion could bring in more than $151 million. Given the concentration of capital gains income among the very wealthiest taxpayers, the benefits of capital gains tax preferences are, of course, focused on the well-to-do. In fact, virtually all — 95 percent — of the tax reductions arising from Wisconsin’s 30 percent capital gains exclusion are realized by the richest 20 percent of taxpayers in the state. The remaining 80 percent of taxpayers collectively receive just 5 percent of the overall capital gains tax break.
This fierce budget debate presents a historic opportunity for all Wisconsinites to take a closer look at their state’s budget, tax structure, and tax credits and ensure that these important fiscal structures reflect the state’s values.