Besides the results of the Madison mayoral primary, today's lead story is the delivery of Gov. Jim Doyle's proposed 2003-2005 State Budget. As the budget was formally presented to the Legislature after the deadline for this column, I am in the unhappy position of writing about the state's financial position--and how to get out of it--without knowing precisely what Doyle has in mind.
Nevertheless, I do have an idea. And seeing as last night's budget address is only the beginning of the budget-writing process, it would not be out of line to offer it here, my lack of knowledge of the specifics of proposed budget notwithstanding.
Here it is: By reforming the state's tax structure, we can raise the same amount of money--and perhaps see a slight increase in tax revenue over time--while causing less distress to the state's economy. This additional revenue will lessen the sting of the massive spending cuts that must take place in this budget cycle.
Now, tax hawks might see the words \slight increase in tax revenue"" and think, ""Oh... he wants to raise taxes."" That is not true. While I think the rhetoric of the tax-cut lobby is sometimes overblown, the fact that the state is, by some measures, near the top of the tax rate tables is quite simply bad for business. Instead, I want to focus on how money is collected--as opposed to concerning myself solely with how much money comes in.
In 2001, the last year for which information from the Department of Revenue is available, state and local governments took in just under $17.5 billion in tax revenue. The largest chunks of this came through the property tax ($6.6 billion), the individual income tax ($5.2 billion), the state sales tax ($3.6 billion), gas taxes ($825 million), corporation taxes ($537 million), excise taxes ($300 million) and county sales taxes ($266 million).
My idea is to shift the percentages around, so that more money comes into government through the individual and corporate income taxes, and less money comes in through the property and consumption taxes. This will have the effect of placing more money in the hands of those on the bottom rungs of the economic ladder. This idea, on the surface, seems intrinsically attractive; providing more benefit to the poor than the rich may be redistributive, but darn it, it just feels good. But the shift toward progressive taxation will have, to the extent that it occurs, two very significant effects on Wisconsin's economy.
First, it will encourage increased consumption of goods. The effective tax cut that those families in lower income brackets would realize would not be saved, but rather spent on things that improve the lives of those families. This ranges from necessities such as better food and clothing, and perhaps health care as well, to bigger-ticket items like household appliances, computers and perhaps automobiles.
Moreover, this spending will not only improve the standard of living for these families, but will also provide additional revenue to small businesses, in both the service and manufacturing sectors. This revenue will allow these businesses to improve and, most important of all, expand. This potential wave of business expansion would mean more jobs--and with the increased competition in the labor market, wage rates may rise. The potential end result of all of this is striking: Wisconsin's hardest-working families will have better wages and living conditions, and Wisconsin's small businesses will see significant improvements to the bottom line.
The other major effect, while primarily affecting a specific area of the state, will be just as significant. To put it bluntly: The current tax structure acts like a weight on the back of Milwaukee. Our state's principal city, of course, is in a troubled situation: The city's school district is known for underachievement and Milwaukeeans are still reeling from last year's marked increase in violent crime. The comparison between the decaying city and its suburbs to the north and west--with their clean neighborhoods, stellar school districts and prosperous citizens--is impressive. And so is this: the effective property tax rate in Milwaukee County is 42 percent higher than in Ozaukee, Washington and Waukesha Counties.
By providing more shared revenue, and not less, to the state's municipalities and school districts, the chasm between Milwaukee and its suburbs, and between Milwaukee and the rest of the state, will narrow significantly. Milwaukee's public schools will get additional money to improve their buildings and pay for more teachers. More money will be available with which to fight and prevent crime. And Milwaukeeans will have more money to spend on consumer goods, which, as noted above, will cause marked improvement in the local economy.
The particulars of a new tax structure are open for debate. But clearly, the state could and should come up with a better way to raise the money that it needs to provide the services that Wisconsinites need.
