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We’ve heard a lot about how Wisconsin’s new state budget erases a $3 billion shortfall without raising taxes.
But could it be true that the budget also provides billions of dollars in tax breaks?
On June 24, 2011, two days before Republican Gov. Scott Walker signed the budget into law, this declaration was made by liberal advocacy group One Wisconsin Now:
"Walker’s budget, includes tax breaks for corporations and the rich that will cost the state of Wisconsin taxpayers $2.3 billion over the next decade."
Versions of the $2 billion-plus claim have also been made in a joint news release from four left-leaning groups and on at least three occasions by Assembly Minority Leader Peter Barca, D-Kenosha. The state Democratic Party put the $2 billion claim first on its list of "worst items" in Walker’s budget.
So, let’s see what’s what.
When asked about the claim, Scot Ross, executive director of One Wisconsin Now, pointed to a June 9, 2011, memo by the non-partisan Legislative Fiscal Bureau, long considered by both parties the neutral scorekeeper on budget matters. The memo was written at the request of Senate Minority Leader Mark Miller, D-Monona.
The memo projects that various tax provisions adopted in 2011 will result in a reduction of $2.33 billion in general fund tax revenue over 10 years. That appears to back the One Wisconsin Now claim.
But the claim is a little more complicated than that -- it really has four elements:
"Walker’s budget (1) includes tax breaks for corporations (2) and the rich (3) that will cost the state of Wisconsin taxpayers $2.3 billion over the next decade (4)."
1. "Walker’s budget"
The group says the $2.3 billion in tax breaks over 10 years is part of the 2011-2013 budget that was proposed by Walker and modified and adopted by the Legislature. But the fiscal bureau reached its projection by considering tax breaks not only in the budget, but in five other business-related measures that were adopted by the Legislature early in 2011.
Ross conceded his group made a "misstatement." He noted that less than two weeks earlier, his group had issued a news release that attributed the $2.3 billion figure to both the budget and the earlier action.
One cautionary note.
Todd Berry, president of the nonprofit Wisconsin Taxpayers Alliance, says it is difficult to project the effects of tax law changes over 10 years: "It’s so volatile, I just don’t think you can forecast very far out."
So, the first part of the claim is off because it cited only Walker’s budget -- but that’s relatively minor, since the budget built the earlier tax reductions into its assumptions.
2. "Tax breaks for corporations"
Ross pointed out that nearly $1.6 billion of the $2.3 billion tax breaks would go to corporations through three tax provisions.
Tax cuts: On production earnings of manufacturers and agricultural businesses. The cuts would apply to small businesses as well as large corporations. The production tax cuts are by far the largest of the breaks, according to the fiscal bureau, resulting in a reduction of an estimated $874 million over 10 years.
"Combined reporting": A partial rollback of a tax increase that was adopted two years ago on multi-state corporations. The fiscal bureau estimates the rollback would reduce tax revenue by $366 million over 10 years, making it the second-largest tax break.
Tax deduction: For hiring new full-time employees. Ross argued that regardless of the size of a company, the money from the tax deduction "is not going to average individual taxpayers." The new-hire deduction is the third-largest tax break, with an estimated loss in revenue of $335 million over 10 years.
So, many of the tax breaks are geared toward corporations and business. That’s not surprising. The focus of the Walker-called special session of the Legislature in January was on improving the state’s business climate.
3. Tax breaks for "the rich"
Ross told us a "a clear majority" of the remaining $700 million in tax breaks will go to the "rich."
Of course, by saying "clear majority," Ross is acknowledging not all of the remaining tax breaks are aimed at the rich. What’s more, there are many differing views of what constitutes the "rich." The point behind the loaded language is they don’t help the average taxpayer.
Ross highlighted three tax breaks:
-- Health savings accounts: This legislation allows employees -- not employers -- to deduct contributions they make to their HSAs, which are used to pay medical expenses, from their state income taxes, as they can from their federal income taxes.
Ross cited a May 2008 memo from the U.S. Government Accountability Office that says the average taxpayer who used an HSA in 2005 had an annual adjusted gross income of $139,000. He argues that that figure shows HSAs benefit "the rich" because the adjusted gross income of other tax filers was only $57,000.
Berry doesn’t buy that argument. He said large corporations and the rich "are more likely to have employer-paid health insurance and would not need an HSA." He noted that nearly every other state allows the deduction, which conforms with federal tax law.
-- Two capital gains changes: One change eliminates state capital-gains taxes on long-term investments in Wisconsin businesses; the other would defer taxes on capital gains reaped anywhere if the proceeds are plowed back into a Wisconsin business. Together, they would result in an estimated tax revenue reduction of $436 million over 10 years.
Ross cited a fiscal bureau report on the two measures that said "capital gain income is concentrated among high-income taxpayers."
Berry said eliminating the long-term investment capital gains tax would tend to benefit people with higher incomes. The deferral measure, however, merely delays taxes and isn’t a tax cut, he said.
So, Part 3 of the claim is mixed. Ross himself acknowledged not all of the $700 million in question goes to the wealthy, only a "clear majority." But the claim gets support from both the legislative fiscal bureau and the taxpayers alliance, who said the capital gains measures benefit higher-income taxpayers.
4. Tax breaks "cost" Wisconsin taxpayers
Ross argued that the tax breaks "cost" Wisconsin taxpayers "because they are reducing the amount of revenue taken in by the state" and because most taxpayers won’t benefit from them. He added: "We remain steadfast in our belief that tax breaks are a form of spending."
But we looked at that question in February 2011 when One Wisconsin Now claimed that $140 million in tax breaks backed by Walker amounted to "new special interest spending." As we concluded then, cutting taxes is "not spending. You can’t spend what you don’t have." We gave the group a Pants on Fire on that claim.
Let’s return to the current claim.
One Wisconsin Now said the new state budget "includes tax breaks for corporations and the rich that will cost the state of Wisconsin taxpayers $2.3 billion over the next decade." The state fiscal bureau estimates tax breaks will bring in $2.3 billion less in revenue over 10 years. The group attributes it all to the budget, when much of it was in separate legislation.
The group’s larger point -- that the tax breaks benefit corporations and wealthier residents, rather than average taxpayers -- is generally on target, given that the largest amounts of the tax breaks go to businesses and to individuals with higher incomes. But as we said in a past ruling, a tax break is not spending or a "cost" to taxpayers. It is money that stays with taxpayers.
The statement contains accurate claims, primarily on who will benefit from newly adopted tax breaks, but shades the language (all in Walker’s budget, a "cost" to taxpayers) to amplify its political point.
We rate the statement Half True.
State Rep. Peter Barca, budget news release, June 26, 2011
State Rep. Peter Barca, budget news release, June 24, 2011
State Rep. Peter Barca, statement to WisconsinEye TV network, June 22, 2011
One Wisconsin Now, budgetnews release, June 24, 2011
One Wisconsin Now, WMC protest news release, June 13, 2011
Citizen Action of Wisconsin, Center on Wisconsin Strategy, Wisconsin Council on Children and Families and Institute for Wisconsin’s Future, budgetnews release, June 16, 2011
Wisconsin Democratic Party, "Top 10 worst items in Scott Walker’s radical budget" news release, June 27, 2011
Interview and e-mail interview, One Wisconsin Now executive director Scot Ross, June 28 and 29, 2011
Interview and e-mail interview, Wisconsin Taxpayers Alliance president Todd Berry, June 29, 2011
Wisconsin Legislative Fiscal Bureau, general fund taxes memo to state Sen. Mark Miller, June 9, 2011
Wisconsin Legislative Fiscal Bureau, health savings accounts legislation memo, Jan. 18, 2011
Wisconsin Legislative Fiscal Bureau, budget paper #310 on two capital gains changes, May 31, 2011
Wisconsin Legislative Fiscal Bureau, budget paper #361 on production tax cuts, May 27, 2009
2011 Wisconsin Act 5tax deduction for new hires law
Milwaukee Journal Sentinel, "Business production tax break added to state budget," June 6, 2011
Milwaukee Journal Sentinel, "GOP panel votes for corporate tax break," May 31, 2011
Capital Times, "Biz Beat: Budget serves up tax break for wealthiest Wisconsinites," June 24, 2011
U.S. Government Accountability Office, Health Savings Accounts memo, April 1, 2008
PolitiFact Wisconsin, "One Wisconsin Now says Scott Walker and the Legislature have increased spending by $140 million," Feb. 1, 2011
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