Wisconsin Legislature passes tax cut

By Scott Bauer
Associated Press / January 25, 2011

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MADISON, Wis.—The Republican-controlled Legislature moved ahead with approving tax cuts for businesses on Tuesday, a day after Gov. Scott Walker warned that the state's budget is in such bad shape that emergency cuts may be needed in order to make it balance this year.

The tax breaks will only deepen the state budget shortfall expected to be $3 billion by mid-2013.

Walker hasn't released any details about how he intends to come up with the money to pay for the tax breaks, which he argues are necessary to send a bold statement that Wisconsin is a more welcoming place for businesses.

Democrats and other critics say the tax cut measures are more about symbolism than action and will do little to improve the economy while they only worsen the budget hole starting next year.

The most expensive measure passed on a bipartisan 60-33 vote Tuesday in the Assembly and was scheduled to be taken up by the Senate on Thursday. The bill would extend tax breaks to companies for every new job they create, at a two-year cost of $67 million.

The benefits, which come in the form of a tax deduction for each new job, would be worth between $92 and $316 per job, based on the size of the company and its tax bracket. Democratic critics called the incentive a "farce" that won't be generous enough to spur any new job creation.

The tax break may not be large, but it is a start, said Rep. Robin Vos, R-Rochester.

"This is a small, simple way to say the state of Wisconsin is here to help," Vos said.

The proposal has undergone several changes since Walker promised on the campaign trail to pass a tax break for companies with fewer than 50 employees. The bill passed by the Assembly bases the size of the tax deduction on whether a company has gross receipts of more or less than $5 million a year.

Two of the proposals approved by the Senate on bipartisan votes and sent to Walker wouldn't make the state's budget woes much worse.

One, at a $1 million cost over two years, would essentially forgive state corporate and personal income taxes on companies that relocate to Wisconsin from elsewhere. The tax break would be good for two years and would only apply to companies that hadn't operated in Wisconsin within the previous two years, starting this calendar year.

"This is nothing more than a tax cut to a few businesses that's so small it's insignificant," said Sen. Bob Jauch, D-Poplar. "It is empty symbolism, nothing more."

Senate Majority Leader Sen. Scott Fitzgerald, R-Juneau, said the bill was part of a larger Walker strategy to improve the economy and fix the budget.

"These bills fit into a bigger picture that the governor's developing and it's going to be tough," Fitzgerald said. "It's going to be a tough budget."

The tax cut bill passed 24-9, with five Democrats joining 19 Republicans in support.

The other measure, which passed 25-8, would raise the amount of money available in an economic development tax incentive program by $25 million, but that money isn't expected to be tapped over the next two years. Democrats tried unsuccessfully to put the money into another existing tax credit program so it could be used immediately.

Both of those bills passed the Assembly last week and now go to Walker who has said he will sign them into law. On Monday, he signed his first bill -- a measure that eliminates state income taxes on health savings accounts, which costs $49 million over two years.

The Assembly also passed a Walker bill that would require a two-thirds majority vote in the Legislature to raise sales or income taxes. That means if all members were present it would take 66 votes instead of 50 in the Assembly and 22 votes instead of 17 in the Senate.

The state's 5 percent sales tax rate hasn't increased since 1982. The 7.9 percent corporate income tax rate hasn't gone up since it was created in 1981. Individual income tax rates vary based on income, with the highest 7.75 percent rate added in 2009.

Democrats attempted in vain to alter the proposal to require a two-thirds vote on any fee increases as well. Walker has said he would consider raising fees, but not sales or income taxes, to help balance the budget.

It passed on a partisan 57-46 vote with only Rep. Mark Radcliffe, D-Black River Falls, breaking ranks and joining Republicans in support.