Recently, Gov. Jim Doyle made his plans public to help the ailing Wisconsin economy. His policies include raising the capital gains tax, a tax on Internet purchases (E-cards, greetings, digital downloads, etc.) and getting rid of film tax credits, among many others. More importantly, the budget proposals are just another example of the incredibly backward thinking exhibited by our government.
First, with all the complaints about piracy among the government as well as organizations like the RIAA (music industry) and the MPAA (movie industry), the absolute last thing that would help fix piracy is increasing the price of online goods. Piracy is a form of market correction and shows dissatisfaction toward the prices of music, movies, games, etc. People are already unwilling to shop in stores because of higher prices and have moved to places like iTunes. What is to be expected once they are dissatisfied with prices in that world? An increase in prices of these online goods will encourage more people to pirate, driving revenue out of both online stores and brick and mortar establishments. The governor's plan is even more backward when one considers the proposed raise in capital gains tax.
The basic premise behind raising the capital gains tax is that a raise will lead to more tax revenue. However, Gov. Doyle seems to not have done his research and forgotten that history has repeatedly shown that lowering the capital gains tax increases tax revenue. Now include the increased tax on online purchases as well as the inevitable, but slightly marginal, increase in piracy, and that's less tax revenue from companies, virtual or not.
It would also be prudent to keep in mind that a higher capital gains tax just is a disincentive to invest and start a business, the opposite of what this country needs. We need more businesses created and more jobs given out, not less. The nation cannot afford the government to enact polices that create disincentives to start a business. The Federal Reserve Board, the face of the American economy, lowered interest rates for the very purpose of spurring investment and jumpstarting loans. This proposed Wisconsin budget plan is a complete contradiction of federal policy.
As for the aforementioned online tax, it will add a whopping $11 million over two years to government revenue. That's $11 million out of a $5 billion deficit. To put things into perspective, that is less than 1 percent of our deficit. However, it would be wrong to ignore the fact that money is money and every little bit helps, hence the argument for the very small online tax. An estimated 65,000 state workers are going to lose their jobs this year, according to an internal memo; we need to cut back somewhere. Yet, 132 state legislators voted themselves a 5.3 percent salary increase in January. Is this really the right time for that?
Let's take a look at the film tax credit, a plan initially established to jumpstart a lagging film industry in Wisconsin. According to the MPAA, $7.4 million was injected into Wisconsin via the production of the upcoming Johnny Depp movie, ""Public Enemies."" It does not require a great deal of mathematical skill to deduce that $7.4 million is more than the $5 million that an online tax would create in one year. With the potential loss of this investment, the state could lose a significant amount of money if directors are unwilling to shoot in Wisconsin. This would most likely kill off the fledgling Wisconsin film industry and cause the state to lose revenue in the process.
These actions/proposals represent backward thinking on the part of the state government, as well as a complete misunderstanding of the problems inactivity in the ailing economy will cause. Loans are not being taken out because they are tougher to get and jobs are being lost. What better way to help our own state economy than forcing out business, driving out potential employment and unintentionally influencing people to start considering illegal practices in obtaining digital goods? But I suppose this is the nature of government, right?
Mike Clutterbuck is a sophomore majoring in economics. We welcome your feedback. Please send responses to opinion@dailycardinal.com.
