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Robert M. La Follette
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Last updated:
August 18, 2011



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Conference Report: Taxing and Spending Limits in Wisconsin

 

200 gather to consider methods for controlling government spending and taxing

 

Study identifies who pays what in taxes
Audra Brennan, administrator of the Wisconsin Department of Revenue’s Research and Policy Division, presented findings from “The Wisconsin Tax Incidence Study,” which looks at who is paying taxes in the state.

“The purpose of the tax incidence study was not necessarily to pass judgment on whether our taxes are too high or too low in Wisconsin,” explains Brennan. Instead, the study explores “who is really bearing the burden of those taxes and how it’s distributed over incomes.”

This study illustrated the amount of tax pressure Wisconsinites bear when it comes to property taxes. The study, which utilizes 2001 data, reveals that for 90 percent of Wisconsin households, property tax accounts for the largest tax burden.

And, while tax credits, such as the homestead credit, to help alleviate some of this tax pressure, they are underused. In fact, less than half of the qualifying households took advantage of the homestead tax credit. The study concludes that essentially, Wisconsin’s property tax is regressive, with lower income households forced to devote a larger share of their income to taxes than higher income households.

The application of the tax incidence study will be invaluable as Wisconsin faces decisions for large-scale tax reform, Brennan says. “For large tax reform proposals we’ll have the capacity to look at what impact those would have on our overall tax distribution—it’s going to be a very critical tool going forward.”

Property tax deferral could help provide relief

While a TABOR may or may not be the best answer, other, more simple and creative ways may thwart the problems of taxing and spending in Wisconsin. For example, addressing the rate at which property taxes increase may help, suggests La Follette School director Donald Nichols, who explained in his morning presentation that Wisconsin’s overall tax and fee burden was the 15th highest in the nation. “We’re not a big government state in general, nor have our taxes been growing faster than our incomes.”

Nichols posits that the issue that gets Wisconsinites agitated is the sudden increases in property taxes that can occur when property values soar in value, or when the taxable property of one’s neighbor, such as farm land, is removed from the property tax base. At the conference Nichols unveiled a plan that would allow homeowners in Wisconsin to receive relief from large increases in their property taxes without restricting the receipts of local governments.

The plan entails deferring property taxes and locking in “the rate of growth of property tax payments on all farms and residences to be no greater than the rate of growth of income of an average Wisconsin resident.” As such, no matter how long people live in their homes, the tax would increase in tune with average income increases, rather than taking the huge jumps seen in many areas around the state as property values and/or mill rates soar.

While Nichols admits that the Legislature and governor can take or leave many of the smaller specific points of the plan, but the general idea is quite simple. “Tax payments that would otherwise be above the frozen limit —whether because of increases in property values or the tax rate—would be deferred until the property is sold,” he explains.

How would state and local services be financed if property tax revenues decline? “A novel feature of the proposal would have state government bond the deferred tax collections and remit the bonded revenue back to the local taxing authorities,” he says.

Nichols’ afternoon presentation of this tax deferral concluded with a member of the audience proposing that the plan be adopted immediately, with the majority of the audience members “voting” overwhelmingly in favor through their applause.

Rain, rain go away

Much of the conference’s focus revolved around restructuring the current budget deficit to lessen taxation and spending. Yet, while Wisconsin has traditionally had problems in this regard, the true problems of the state’s structural deficit didn’t hit until the fall of the dot.com boom and other recent economic constraints that have led to federal, state and local budget crunches.

One way to plan for these very episodes is to develop a budget stabilization fund or what’s more commonly called a rainy day fund, explains Iris Lav, deputy director of the Center on Budget and Policy Priorities, which conducts research and analysis to inform public debates about proposed budget and tax policies, and to help ensure that those debates consider the needs of low-income families and individuals.

Lav explains she is a fan of rainy day funds due to the fact during hard times the need for more local services increases while the ability of the state to help fund them decreases. “And so one of the things that a state can do to overcome some of this problem,” she says, “is to have rainy day funds—to save some money during the good times and use it in the bad times. And that mitigates some of what I call yo-yo budgeting where taxes go up [and] taxes go down.”

Yet, when Lav looks back to the recent economic downturn and a recent series of deficits, she found that the majority of states had set up some sort of budget stabilization fund to help buffer the effects of recent times.

“Well what about Wisconsin? You know what the next slide’s going to say don’t you?” Lav quips as the audience chuckles before hearing the bad news. “Wisconsin wasn’t prepared at all. Wisconsin was one of only 10 states that did not have any money at all in its budget stabilization fund in the beginning of the downturn. Nothing.”

Lav explains that in coming to the conference she asked herself whether Wisconsin needs TABOR to have a rainy day fund or, alternatively, whether a rainy day fund needs to precede a TABOR. And, while she concedes that current TABOR proposals would establish a rainy day fund, she notes that Wisconsin already has a rainy day fund, albeit one that needs to be utilized more aggressively.

“My message is that you do not need TABOR to reform Wisconsin’s budget stabilization fund. That’s sort of taking a sledgehammer to swat a fly. You can fix the budget stabilization fund. Just do it.”